"The Sun" splashed the story across its Saturday front page, with a still photograph showing the queen as a young girl with her right hand in the air.
The picture came from newly unearthed black-and-white film footage taken on the royal family's Balmoral estate in Scotland between 1933 and 1934. The film shows the future monarch, in the middle of the group, briefly raising her hand aloft three times.
The newspaper ran a still photo of the scene under the headline "Their Royal Heilnesses."
The film also shows a carefree Elizabeth playing with one of her beloved corgi dogs and dancing excitedly. The late queen mother and the queen's late younger sister, Margaret, also appear to be doing the salute, with the group apparently encouraged by the queen's uncle, the future King Edward VIII.
A royal source insisted that - given her tender years - the queen would have been "entirely innocent of attaching any meaning to these gestures."
"It is disappointing that film shot eight decades ago and apparently from HM's (her majesty's) personal family archive has been obtained and exploited in this manner," a spokesman for Buckingham Palace said in a statement.
King for a fascist Britain?
The nature of Edward's links to the Nazis is a source of debate, and he is often accused of being sympathetic to Adolf Hitler and his regime. He abdicated the throne in 1936 - having controversially opted to marry US divorcee Wallis Simpson - and met Hitler the following year in Germany.
Some historians have even suggested that, had Hitler's plan to invade England been successful, the dictator was prepared to reinstate Edward as king in the hope of establishing a fascist Britain
"The Sun" defended its decision to publish the pictures, saying that they offered "a fascinating insight into the warped prejudices of Edward VIII."
"We publish them today knowing they do not reflect badly on our queen, her late sister or mother in any way," it added.
'Service and dedication'
During World War II, the queen trained as a driver and mechanic in the Women's Auxiliary Territorial Service and became an honorary junior commander.
"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," a royal source told the AFP news agency.
The monarch paid a state visit to Germany last month during which she went for the first time to a former Nazi camp, Bergen-Belsen, where some 52,000 people died.
"The Sun" - Britain's top-selling newspaper - is no stranger to printing stories that the royals might prefer to keep under wraps. In 2005, the paper published a photograph of Prince Harry wearing a swastika armband to a fancy dress party. The fifth-in-line to the throne later apologized.
rc/gsw (AFP, dpa)