A prominent Wellington activist has had her conviction for burning the New Zealand flag during an Anzac Day dawn service quashed by the Supreme Court.

Valerie Morse, of Wellington, was fined $500 in Wellington District Court for burning the flag in the Victoria University's law school grounds, opposite the Cenotaph during the 2007 Anzac Day service.

Her conviction was later upheld by the High Court and the Court of Appeal.

Morse's lawyers argued that her conviction was criminal punishment for expressing ideas.

In its ruling today the Supreme Court said previous rulings had misinterpreted the meaning of "offensive behaviour" in the Summary Offences Act.

In the District Court ruling, which was upheld by the High Court and the Court of Appeal, the judge interpreted offensive behaviour as behaviour that arouses real anger, resentment, disgust or outrage in the mind of a "reasonable person" in the circumstances.

The Supreme Court unanimously ruled that offensive behaviour within the context of the Act must give rise to a "disturbance of public order".

Although the judges agreed disturbance of public order was a necessary element of offensive behaviour under the Act the judges disagreed about its meaning outside the Act.

The majority, with the Chief Justice Dame Sian Elias dissenting and Justice Sir Noel Anderson not entirely concurring on the point, ruled "offensive behaviour" must be capable of wounding feelings or arousing real anger, resentment, disgust or outrage, objectively assessed, provided it was to an extent which impacted on public order and was more than those subjected to it should have to tolerate.

Because the court ruled the original trial was guided by incorrect legal principles there would be no retrial, the judges said.