Ms Clark said that removing the British emblem would "New Zealandise" the flag, leaving it as a stylised Southern Cross on a blue background.
New Zealanders have agonised for years over whether to change their national emblem, with some recoiling at the inclusion of the Union flag and wanting it replaced with a Maori-influenced design.
The most favoured alternative design is a silver fern, in Maori a ponga, on a black background — the emblem of the All Blacks national rugby team since 1893.
Others argue that the flag needs to be changed because it is all but identical to the Australian flag — only the colour and number of the Southern Cross stars are different.
Monarchists fear the removal of the Union flag could be the first step in a drive towards declaring New Zealand a republic.
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An editorial in the New Zealand Herald said Ms Clark's suggestion should be opposed.
"The Southern Cross in a sea of blue locates us in the South Pacific and the Union flag in the corner represents our many positive British traditions," it said. "In a world racked by conflict, corruption, intolerance and bad governance, these traditions should be protected and encouraged."
But Ms Clark said New Zealand could ditch the Union flag, just as Canada adopted its maple leaf flag in 1964, without having to become a republic or change its constitutional relationship with Britain.
The two issues should be kept separate, she said. "I think people could debate the flag the way Canada did when it transitioned to the maple leaf without it calling into question the basic constitutional status. Canada, of course, still recognises the Queen as its head of state as well," she said.
Her suggestion sparked an intense debate in online newspaper forums, with some contributors in favour of the change.
"Our flag does not fill me with pride and has no real meaning for most. It is far too similar to the Australian flag," one New Zealand Herald reader wrote.
But others said the flag represented New Zealand's British heritage and should be retained.
"One thing that many people seem to have forgotten is that we have inherited the British political and justice systems. The Union flag represents this and I believe is something that is under valued," wrote another reader.
An Auckland man said New Zealand forces had fought under the flag in two world wars. "It's part of our history, it's who we are and it allies us with friends," he said.
Two years ago a lobby group, NZFlag.com, attempted to collect 270,000 signatures — 10 per cent of eligible voters — to force a referendum on changing the flag.
The campaign was abandoned when the petition did not attract enough supporters
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