The Xtra Factor host said that Barlow's comments about his fellow judge's "fag ash breath" mean that she can respond how she pleases.
"After their ding-dong over the 'fragrance' of each other's breath on the live show, Gary and Tulisa spoke for about two hours in her dressing room, with Nicole acting as mediator," Flack told Heat.
"Obviously Tulisa was upset - like anyone would be if someone said you had bad breath on live television."
She added: "I think Gary meant it as a joke, but he did apologise when he realised how offensive the comment was.
"And if someone apologises, I think it's hard not to accept it, but we'll have to see. Gary's now given Tulisa free rein to insult him whenever she wants to, but I doubt she will."
Photo gallery - X Factor results show 5:
Copyright: Ken McKay/Thames/Rex FeaturesSinger Jade Ellis has said that Barlow's comments were "very mean", while Contostavlos admitted to Digital Spy that as a smoker she is "paranoid" about her breath.
Watch Contostavlos discuss the incident with Digital Spy below: