Celtic prematurely made the same announcement on Monday following a major misunderstanding after the ban was announced 24 hours earlier, but the Perth club have now confirmed that police have allowed a relaxation for the McDiarmid Park encounter.
A statement from St Johnstone read: "Further discussion has today taken place between all parties and a request from the clubs made to Police Scotland that the ban be lifted has been accepted.
"Safety remains of paramount importance to both clubs and the match will be managed with this in mind and with Police Scotland having reviewed this policy, the two clubs are now putting their faith in all supporters that they shall support their respective teams in a manner which befits what should be a great game of football on a special date in the football calendar."
The ban was initially imposed in a bid to prevent fans using flags to hide the use of pyrotechnics.
Celtic admitted they had jumped the gun with their statement on Monday but they welcomed the confirmation of the decision.
In a statement, the club said: "For clarity, Celtic Football Club has received confirmation that flags and banners will now be permitted at the match against St Johnstone on Boxing Day.
"Last week, Celtic Football Club noted the advice given by local police regarding safety, flags and banners at the match.
"We acknowledge we had not received final confirmation yesterday in terms of a change. However, we are pleased, following consultation and discussion over the past couple of days, that the initial decision has been reviewed by the police and St Johnstone FC."
Police Scotland's press office was unable to provide confirmation immediately after the clubs announced the decision.
Police later confirmed they backed St Johnstone's decision.
In a statement, the match commander, Supt Kevin Lynch, said: ''Following further discussions with both football clubs and ourselves and having taken the views of supporters' associations into account, we support the decision taken by St Johnstone FC to allow flags and banners at this fixture.
''Police Scotland will continue to work with both clubs to ensure that everyone enjoys the game in true festive spirit in a safe and considerate manner.
"As with all fixtures, alcohol, containers, smoke bombs and pyrotechnic flares are not permitted in the ground and again, appropriate action will be taken against anyone in possession of such items who is breaching ground safety regulations or involved in any criminal activity."