A number of radical Islamic groups including Muslims Against Crusades (MAC) gathered outside the embassy on the 10th anniversary of the attacks.
The group of around 100 men shouted "USA terrorists", brandished anti-American placards and chanted through a loudhailer.
Several members of the Muslim groups made anti-American speeches following the flag burning.
One said: "You will always face suffering, you will always face humiliation, unless you withdraw your troops from Muslim lands."
Another declared that America had been "defeated in Iraq and defeated in Afghanistan".
Members of the group publicly burned a poppy on Armistice Day in a similar stunt.
The photo above may have been from that incident, but accompanied this story at the Telegraph.
However, a small opposing group of Muslims - some of whom had travelled hundreds of miles to rebut the extremists - staged a counter-demonstration nearby, holding up placards reading "Muslims Against Extremism" and "If You Want Sharia, Move To Saudi".
Abdul Sallam, 41, who was waving a sign that read "Keep The Silence", travelled down to London from his home in Glasgow to show the strength of his feelings.
He said: "I'm a Muslim. What they're doing is bringing shame on all Muslims. This is not part of the teachings of Islam.
"Islam teaches you that when you see anything bad or evil, you should speak out against it.
"If the moderate Muslims all came out and spoke out, that would defeat them.
"I am proud to be British. I love my country. All these people are doing is breaking Britain apart."
One of the Grosvenor Square memorial service attendees, who did not want to be named, said the protesters should be stopped from standing just across the road from the embassy and using a loud megaphone.
The man, whose cousin died in the terror attacks, said: "They shouldn't be allowed to do it. It's very disrespectful. It's too loud."
He added: "They can say what they want but not with the loudspeaker."