The newspaper printed stills from a 1933 home video showing the Queen, then just 6 years old, copying the salute of Adolf Hitler’s evil regime.
In the 17-second clip, she is pictured with her mother, sister Princess Margaret and uncle and future king Edward VIII in the garden at the family’s Scottish retreat, Balmoral.
"It is disappointing that film, shot eight decades ago and apparently from HM's personal family archive, has been obtained and exploited in this manner," a palace spokesman tells PEOPLE.
And it's likely that questions are now being raised within the palace about how the film became public. There is no doubting the authenticity of the film and no suggestion by the paper or anyone else that the Queen, now 89, has ever been a Nazi sympathizer.
By early Saturday, it was not known if the Queen had seen the film and the ensuing coverage.
"Most people will see these pictures in their proper context and time," a royal source tells PEOPLE. "This is a family playing and momentarily referencing a gesture many would have seen from contemporary news reels. No one at that time had any sense how it would evolve. To imply anything else is misleading and dishonest."
The source adds, "The Queen is around 6 years of age at the time and entirely innocent of attaching any meaning to these gestures."
The Sun defended its publication in an editorial, saying the film highlighted King Edward VIII's sympathies. "The man who briefly became our King was already a fan of Hitler – and remained so as late as 1970, long after the Holocaust's horrors were laid bare," the editorial stated.
But the source points out to PEOPLE that the Queen has spent her reign building relationships across countries and borders. "The Queen and her family's service and dedication to the welfare of this nation during the war, and the 63 years the Queen has spent building relations between nations and peoples, speaks for itself."
The film's publication comes just three weeks after she and husband Prince Philip, 94, paid tribute at the memorial to the more than 50,000 people who were murdered at the Nazis' Bergen-Belsen concentration camp in Germany. She and Philip had made a poignant visit to the camp, including the grave site of teenage diarist Anne Frank – one of the six million Jews who died in the Holocaust. Officials had previously said the monarch wanted the visit to be "personal and reflective."
While the Queen joined the Auxiliary Territorial Service working as a mechanic when she was 16, her mother also stoically stayed in the palace alongside King George VI (who succeeded his brother Edward VIII following the latter's abdication of 1936) during the bombing to show solidarity with ordinary Londoners.
Their stoicism during the bombings earned them widespread respect. In May, as part of the 70th anniversary of VE Day, the palace released a BBC recording from 1985 in which the Queen recalled secretly celebrating on the London streets at the war's end.
"We cheered the King and Queen on the balcony and then walked miles through the street," she recalled. "I remember lines of unknown people linking arms and walking down Whitehall, all of us just swept along on a tide of happiness and relief."
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