AIATF Chairman M S Bitta termed the waving of Pakistani flags as an "anti-India activity" and said this is the second time in 15 days that such an incident has taken place in the militancy-affected State.
Another separatist, Masarat Alam, was arrested last month after his supporters waved Pakistani flags and raised pro-Pakistan slogans at a rally in Srinagar.
"These separatists should not be allowed to roam freely. They should be behind bars," said Bitta, a former President of Indian Youth Congress.
"The 26/11 mastermind has now sought exemption from court appearance (in Mumbai attack case). AIATF members join other Indian citizens in opposing the release of Lakhvi," said Bitta, who survived at least two assassination attempts in early 1990s.
The march was taken out from Kalbadevi to Mumbai CST railway station and it was led by S P Ahuja, chief of city unit of AIATF.