Update 3:30 p.m.: Officer Daniels was placed on administrative leave on Monday while the Chapel Hill Police Department starts an investigation.
"The pervasiveness of the concerns raised by many regarding his display of a tattoo that is associated with the "3 Percenters" has caused the Department to question his ability to function effectively as a police officer within this community," Town Manager Roger Stancil said in a statement.
Daniels will remain on leave for the duration of the investigation.
A Chapel Hill police officer was photographed by a demonstrator at the Silent Sam protest on Monday night with a tattoo of a symbol for an anti-government group.
The picture shows Officer Daniels with a Three Percenters tattoo on his arm.
The Three Percenters identify themselves as "a national organization made up of patriotic citizens" that are "committed to standing against and exposing corruption and injustice."
Many outlets identify the group as a militia, including the Southern Poverty Law Center, which identifies them as an "active extreme" anti-government group.
Daniels expressed regret that his tattoo has been associated with groups that perpetuate hatred and violence, the Chapel Hill Police Department said in a statement to The Daily Tar Heel.