It said that the felling of trees is a threat to the tiny kingdom's beauty and undermines the government's duty to promote "Gross National Happiness".
The flags are flown by Himalayan Buddhists to help the dead find the right path in their next life.
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They believe that the more flag poles put up for the departed the better.
Buddhist monks say fresh poles must be used each time.
Government figures show that between June 2007 to June 2008, 60,178 trees - about 165 every day - were felled to meet the demand for poles. About 550 trees were felled daily for other uses.
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