The Karelian Workers' Commune was set up 7 June 1920 by decree of the All-Russian Central Executive Committee of the Congress of Soviets. It worked in direct competition with the autonomous East Karelian government. This was the idea of Edvard Gylling who negotiated with Lenin about the state formation in Soviet Karelia. He also became chairman of the KWC's Revolutionary Committee. Edvard Gylling was one of the revolutionary Red leaders in Finland in 1918. He fled to Soviet Russia.

Initially, both the borders and administration structure of the KWC were somewhat unsettled. The KWC did not have a constitution or a flag of its own. Instead the Russian constitution applied, and the Russian flags were used.

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