Stitch Kitchen is using them to create a garland that will be 500m long and be used at events throughout Dunedin.
The garland is being created 25m at a time, which project co-ordinator Fiona Jenkin called a "logistical nightmare".
"We can't make gold straw out of nothing, so we do need to get as many flags as we can get our hands on."
Each 25m section was made up of about 24 flags and each tassel was made of six flag cuts, which measured 2.5cm by 70cm, Ms Jenkin said.
"Multiply that by many times to get 500m and we need a lot of flags."
The business had not done a project of this scale before and had been sourcing flags from local businesses and community members, she said.
"We do need to get hold of more flags. So, if anyone has got flags that they don't want to keep, we'll reuse."
The project is a collaboration with the Dunedin City Council, which would use them at various events around the city for the foreseeable future.
"It’s great to give them as much life as possible, even when they're starting to have that wear and tear."
They started work on creating the garland last month.
"It feels exciting, but it's also a challenge. But we're getting there."
Putting the tassels together was a time consuming task due to the slippery fabric they were made from, she said.
There was no deadline for the project, but there was "hope" that if three volunteers regularly worked on the sewing, stitching and cutting for the project it would be completed in an efficient manner, she said.
A Dunedin City Council spokesman said the first intended use of the garland was scheduled for an event in February.
