Heritage chiefs at Historic Scotland have agreed to install a new flagpole in the grounds of the tourist attraction – but they will not be moved on calls to raise the Saltire above the Union Flag.
Nationalists have long campaigned against the use of the Union Flag at the castle, as they view it as a symbol of colonial oppression.
But the Union Flag is unlikely to be demoted because of Edinburgh Castle’s status as a designated flag-flying station for the British Army.
The decision to move the Scottish Flag to a higher vantage point comes after a decade-long struggle to have it relocated from its original spot at the lower section of the castle ramparts.
Previously, campaigners lodged a petition calling for a new 90ft flagpole to be installed in the castle’s Crown Square.
They argued that giving the Saltire the most prominent spot would help tourism.
But the proposal was rejected by Historic Scotland on cost and health and safety grounds.
Last week, the heritage organisation put forward a compromise proposal which would mean a smaller flagpole would be erected to give the Scottish national flag greater prominence, but their plan had no indication that it would be flown about the Union Flag.
Veteran’s groups have welcomed the proposal but campaigners and opposition MSPs described the decision as an “insult”.
Mark Hirst, from campaign group Saltire Scotland, said: “Historic Scotland do not appear to want Scotland’s national flag flown at the highest point at Edinburgh Castle despite the evidence that demonstrates there are no formal barriers to that.
“This is an insult to Scots and flies in the face of the overwhelming opinion of visitors to the castle who want to see the Saltire flown over it.
“We are now calling on the organisation to consider flying the Union Flag from the proposed new flagpole and allow the Saltire to be flown from the Clock Tower, the highest point on the site.”
Christine Grahame, SNP MSP for the South of Scotland, said: “The Saltire is widely and proudly used by Scottish servicemen and women.
“The MoD is also quite happy to use it for recruitment purposes and even the British Legion uses Scotland’s national flag in fundraising efforts.
“I therefore cannot understand why anyone would object to it being flown from the highest point of Scotland’s most iconic building.”
But Neil Griffiths, from the Royal British Legion Scotland, dubbed these attitudes as being “childish”.
He said: “These people seem to forget we’re all Scottish and British and that Edinburgh Castle is home to a British army unit.
“There is room for both of these flags in the Edinburgh skyline and indeed in our hearts and this compromise would seem like a fair one.”
Ownership of the castle lies with Scottish ministers and decisions about flag-flying policy can be made only by them.
A spokeswoman from Historic Scotland said: “The response to this petition will go before the Petitions Committee next week.
“It is therefore not appropriate at this stage to pre-empt their discussions.”