The rainbow flags with the Jewish symbol "made people feel unsafe", an organiser told the Windy City Times.
Laurel Grauer said she was told to leave the so-called Dyke March "because my flag was a trigger to people that they found offensive".
The organisers later hit back, saying Israel hides behind LGBT-rights.
"It was a flag from my congregation which celebrates my queer, Jewish identity which I have done for over a decade marching in the Dyke March with the same flag," Ms Grauer told Windy City Times.
Ms Grauer, who works for A Wider Bridge, which supports LGBT people in Israel, said she lost count of how many times she was verbally harassed by other marchers on Saturday.
The Dyke March takes place one day ahead of the city's official Pride March.
It is described by organisers as being a "more inclusive, more social justice-oriented" march than the city's main Pride parade.
In a social media post, the Dyke March said: "This decision was made after [the expelled marchers] repeatedly expressed support for Zionism during conversations with Dyke March Collective members."
Ms Grauer told the Times: "People asked me if I was a Zionist and I said, 'yes, I do care about the state of Israel, but I also believe in a two-state solution and an independent Palestine.'
"It's hard to swallow the idea of inclusion when you are excluding people from that," she continued.
"People are saying, 'You can be gay but not in this way.' We do not feel welcomed. We do not feel included."
In a statement, the Dyke March Collective later accused Ms Grauer's organistion of "using Israel's supposed 'LGBTQ tolerance' to pinkwash the violent occupation of Palestine".
A Wider Bridge hit back in a statement, saying: "That the organisers would choose to dismiss long-time community members for choosing to express their Jewish identity or spirituality runs counter to the very values the Dyke March claims to uphold, and veers down a dangerous path toward anti-Semitism."
They called upon the Dyke March Collective to issue a full apology.
Red State, a conservative blog, wrote: "When you're the organizer of a gay pride parade meant to celebrate 'inclusiveness,' then you're not just engaging in bigotry and anti-Semitism, but you're saying to the world you're also a giant hypocrite."
Organisers of an LGBT-rights festival in Chicago are being accused of anti-Semitism after they expelled marchers carrying the Star of David.