Shoppers, traders and community leaders said Havant was now becoming the 'scrooge town of the south'.
The decision comes after Father Christmas and his grotto was booted out of the Meridian Centre in West Street over health and safety fears.
Havant Borough Council made the change to the festive celebrations, claiming that using the word Christmas could upset people of different cultures and faiths.
But council leader David Gillett said: 'It's Christmas and these are Christmas lights. I don't see any sense in denying this.
'I can't for the life of me see why people would be offended by this and, to be honest, I don't think anyone is.'
The lights cost more than £5,000 this year and have been funded by the council and the Havant Business Group.
The display will be the same as last year and will still feature a Christmas tree with shoppers and families invited to carol singing, a Christmas market and other festive events.
Town centre manager Gail Grant, who oversaw the whole project, was unavailable for comment and Dawn Baxendale, director of community services at the council, refused to comment on how and why the decision was made.