The Parnu city government removed the monument depicting an Estonian Waffen-SS soldier pointing his gun east toward Russia after Prime Minister Siim Kallas and others criticized it.
Officials said it was inappropriate and glorified the Nazis, who occupied Estonia from 1941-44.
An SS symbol had been removed from the soldier's helmet, but the inscription caused the government to first cancel the unveiling of the monument and then to remove it. The monument read: "To all Estonian soldiers who fell in the Second War to liberate their homeland and to free Europe in 1940-45."
"We do not accept a monument for the SS," said Romek Kosenkranius, a spokesman for the city. "If these people want to put up a statue in Parnu, it should depict Estonia's freedom fight."
Estonian government officials said the monument would have caused foreign leaders to question Estonia's national character and possibly damage the country's efforts to join NATO and the European Union.
"The city government did a good job and reacted so fast," said government spokesman Daniel Vaarik. "They got it down in less than 24 hours."
Tens of thousands of Estonians volunteered or were forced into service by the Nazis, who during their four year occupation of all the Baltic states managed almost entirely to wipe out their prewar Jewish communities.
But because the Nazi occupation began one year after the Soviet Union first invaded Estonia, many initially viewed Hitler's soldiers as liberators.
Some Estonians, such as Parnu resident Leo Taamiksaar, who led the effort to build the monument, continue to acknowledge that the Germans were fighting to help free the small country from communism.
"I think the moment the Germans came, they really liberated Estonia," said Tammiksaar, 40. "But that was only in the beginning. Later of course it was occupied by Germany, but this first moment was important because they freed us from the Soviet occupation that was so terrible."
Taamiksaar says he is not a Nazi-sympathizer and that the text on the monument is appropriate.
"The monument has nothing to do with Nazis or with Germans," Taamiksaar said. "It is for Estonians who died."
Several meters from the flower-covered concrete slab in Parnu's Vana Park stands a monument to soldiers who died fighting for Russia in 1905, 1917, and during World War II.
Tammiksaar said it should be taken down, too.
He said that if the Germans hadn't occupied many European countries, Stalin would have invaded them. This is important to remember, he said.
"As an Estonian I think that every occupation is bad," he said. "Every political system that murdered one person is bad. But Hitler wanted to kill only Jews and gypsies. Stalin wanted to kill all, even his own. Let each man decide for himself which is worse."
But the government is maintaining its decade-old position on this issue: the monuments from Soviet times will stay.
"Anyone who sees monuments in Estonia needs to take them in context," Vaarik, the government's spokesman said. "People understand the context of the Russian monuments. Of course it's a painful issue because we in Estonia were victims of both of these regimes."
The monument in Parnu is not appropriate in the context of independence and democracy because the Nazis committed war crimes, government officials said. The city government in Parnu told Tammiksaar it would reconsider the new monument if they change its text and shape.
Estonia and Latvia have come under fire in recent years for being too forgiving of locals who fought alongside the Germans.
Latvia canceled an annual march of Waffen SS veterans in the face of Western pressure.
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