The Royal Mint's recently issued commemorative £2 coin shows an image of Lord Kitchener and the words "Your country needs you".
The famous picture was used during the British government's recruitment campaign and is one of the best-known pieces of propaganda in history.
But Plaid Cymru Welsh Assembly candidate Dai Lloyd says the "offensive" coin glorifies war and should never have gone into circulation.
Dr Lloyd said: "Until now there has been a widespread consensus that the commemoration should avoid glorifying war or reopening old wounds.
"But it is hard to imagine a more offensive and jingoistic message to send to the rest of the world than this unfortunate image.
"It epitomises the blinkered mentality that sent millions to their deaths in the trenches, including tens of thousands from Wales.
"At a time when we are seeking reconciliation between the West and the Muslim world, how can it make sense to lionise Lord Kitchener, whose military record includes the butchery of thousands of Sudanese at Omdurman?"
Dr Lloyd, who is looking to make a return to the Welsh Assembly in 2016 after losing his regional seat five years ago, said there were better ways the Royal Mint could have marked the war's 100th anniversary.
"If they wanted to mark the events of 1914/18, why not recall Hedd Wyn, the Welsh poet who lost his life at Passchendaele and whose posthumous entry won the 1917 National Eisteddfod chair?" he asked.
The Royal Mint said it had been producing British coins that have recorded the passing of history, documenting changes in monarchs, customs and national themes.
A spokeswoman said: "In 2014 Britain will remember the 100th anniversary of the start of the First World War and the Royal Mint will embark on a five-year commemoration of the emotive wartime journey from outbreak to armistice.
"This programme starts with a £2 coin bearing sculptor John Bergdahl's powerful likeness of the instantly recognisable image of Lord Kitchener's iconic call to arms.
"This design was selected to mark the centenary of the start of the First World War because it has come to be strongly associated with the outbreak of the war and is recognised by much of the population.
"It is important to understand that this uncirculated coin does not stand alone, but is part of a longer programme of coins that will commemorate the First World War."
She added: "These coins will tell the stories of the armed forces, individuals, key battles and cultural and technological developments of that period, before finishing with a poignant reflection on the armistice and the ongoing legacy of the war."
Lord Kitchener was secretary of state for war at the beginning of the First World War and organised armies on an unprecedented scale.
It is believed he drowned in 1916 after his ship was sunk by a German mine off the Orkney Islands. His body was never recovered.