Andreas Fransson, 32, was with his bearded buddies on Saturday outside the ruins of Brahehus castle in southern Sweden when two police officers turned up.
"They told us that a motorist thought he had seen a gathering of IS terrorists," said Fransson, whose Bearded Villains organisation does charity work.
On grasping the situation, the two officers "had a good laugh" and got back in their patrol car "with smiles on their faces," said Fransson who works in public relations.
"We belong to a club that is part of an association created in the United States, called the Bearded Villains and which fights against injustice, homophobia, racism and oppression," he said.
"The flag gets passed from club-to-club around the world and we take pictures with the flag to show our community," he said.
"It was a funny incident but it's a shame to be associated with IS given our charity work."
Last week, an engineering school in southern France called ISIS ran into trouble with Canadian customs agents worried over a possible link to the jihadist group, which also uses the same acronym.
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