Four large inflatable balls designed to look like watermelons were pushed around by the crowd.
The watermelon is seen as a symbol of Palestinian solidarity as its red, white, black, and green colours match the flag.
The European Jewish Congress said the banner “promotes hatred”.
In a post on X, the EJC stated: "Calls for the destruction of the world’s only Jewish state go far beyond legitimate political expression.
“Such rhetoric promotes hatred, fuels hostility and contributes to an environment in which antisemitism is increasingly normalised."
Inflatable 'watermelon' balls were pushed around by the crowd at the opening ceremony (Getty Images)AFP via Getty Images
The festival of San Fermin started on Monday with the first bull run on Tuesday, when at least five people were hurt.
Over the years, 16 people have been killed during the event which attracts visitors from around the world.
Hordes of revellers take part, dressed in white with a red bandana around their necks.
Similar anti-Israel messaging featured at the festival last year, with pro-Palestinian activists also displaying a banner reading ‘Destroy Israel’.
They chanted "Long live free Palestine" after being invited to take part in the opening festivities by the city’s mayor.
Israel's embassy in Spain said at the time it was "disgusted" by the display, accusing organisers of fuelling a political "obsession" with the Jewish state.
Bulls chase participants through the narrow streets (Getty Images)AFP via Getty Images
The latest incident comes amid heightened tensions between Spain and Israel.
In May, Spanish Prime Minister Pedro Sánchez described Israel as a "genocidal state", adding that Spain "does not do business" with such a country.
The new banner display follows a series of recent anti-Israel and antisemitism-related controversies in Spain.
This week, a group of French Jewish tourists alleged they were harassed and chased through the streets of Barcelona by a mob. According to the group's account, some of those involved wore keffiyehs and shouted, "Jews are not welcome in Barcelona", "Baby killers" and "Israeli genocide", while preventing them from leaving the area.
In April, an effigy of Israeli Prime Minister Benjamin Netanyahu was blown up during Easter celebrations in a Spanish town.
In June, a bathhouse in Barcelona apologised after two Jewish women said they were excluded from an event at the venue after one of them wore a Star of David necklace.
Spain has been among Europe's most outspoken critics of Israel since the outbreak of the Gaza war. In 2024, Madrid formally recognised the state of Palestine and joined South Africa’s genocide case against Israel in the ICJ.
