Imagine that the Cohen family reunion is on a Monday. A minyan is planned with a sefer Torah. However, the gabbai, a kohen, looks around and sees that the minyan has nine kohanim and one levi - who married into the family. Normally, the first aliyah goes to a kohen, the second to a levi, and the third to an Israelite. But since, here, there are no Israelites, how should the aliyahs be given?
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A city in which all are Kohanim, If there is one Yisrael among them, he's called up first because of Darkei Shalom - in the interests of peace [among the Kohanim].
When it says Yisrael here it means a non-Kohein (ie. Levi) for the same reason - so as not to cause strife among the Kohanim. Like the Ta"z implies ibid ד"ה מפני דרכי שלום:
Edit: The Mishna Berura 45 writes explicitly that the same din (non Kohen is called up first) applies when there is only one Levi in town. He reads first for that reason (darchei sholom).