Its title, The Montgomery Mermaid, and caption, "Welcome to Sheerness, You'll Have a Blast", refer to the SS Richard Montgomery - a shipwreck off Kent with 1,400 tonnes of explosives on board.
Some passers-by described it as a slur on the town and saw it as miserable.
Artist Dean Tweedy said most people he had spoken to loved it.
He said he wanted to get people talking about the Montgomery and the danger it posed.
Coastguards still monitor the Montgomery which is under threat of collapse and protected by an exclusion zone.
But Matt Brown, from Sheerness Enhancement Association for Leisure, said the mural was near a play area and not the place for a political statement.
"I'd certainly donate the paint to paint over it," he said.
One passer-by who talked to the BBC said the mural was "unfair because Sheerness is all right" and another woman said the mermaid "looked a bit miserable". One man said the mural was better than graffiti.
As a child, Tweedy spent summer holidays in the 1970s on Sheppey and remembers Sheerness as a vibrant seaside town.
He said he moved to Kent and returned to Sheerness about 10 years ago, but was sad to find it industrialised and "changed completely".
"Granddad was in the Navy and a dock worker. I used to go there and he'd tell me stories about the Montgomery and how it was still a danger. That always stuck with me."
The idea for the mural came years ago when Tweedy dreamed about a mermaid swimming around the wreck to protect it, and the opportunity came with this year's Sheerness arts festival.
He admitted the mermaid looked grumpy rather than protective, but asked: "Why wouldn't you be?"
He said: "She's angry because the SS Montgomery is still there and it's not been dealt with."
A spokeswoman for the Maritime and Coastguard Agency said regular surveys were carried out on the wreck, which remained under 24-hour surveillance.
A mural of a mermaid has come under fire in a Kent town - because she has been painted with scowl and her hand resting on a TNT detonator.