The controversy began when a volunteer at one of the organization's 430 British stores complained to the press after a nativity scene and a tree were removed from the premises.
Christine Banks, who volunteers at a store in the county of Kent south of London, said her manager was ordered to take down all Christmas-themed decorations.
"We put up a nativity scene in the window and were told to take it out," Banks told the Daily Mail tabloid. "It seems we can't have anything that means Christmas. We're allowed to have some tinsel but that's it ... we were told it is because we must not upset Muslims."
The policy was criticized by the Church of England. A church spokesman said the removal of the display was a "sad development."
"It is difficult to see how a nativity scene in a British shop could cause difficulty," the spokesman told the Sunday Telegraph. "We hope there is an opportunity for the charity to reconsider."
The Red Cross was even criticized by some Muslims. Lord Ahmed, one of Britain's most outspoken Muslim politicians, said that it was "stupid" to think Muslims would be offended by a Christmas display.
"The Muslim community has been talking to Christians for the past 1,400 years," he told the Daily Mail. "The teachings from Islam are that you should respect other faiths."
A Red Cross spokesman confirmed that Christmas displays, other than "seasonal decorations" such as tinsel and fake snow, are not allowed inside the organization's second-hand stores.
But the organization's chief executive denied that the Red Cross was "banning" anything and contended that the removal of the decorations was in accordance with a policy that forbids materials of an "overtly religious nature."
"The British Red Cross has not banned Christmas," said Sir Nicholas Young. "Our volunteers and staff are welcome and actively encouraged to celebrate their own particular religions and festivals whenever and however they please."
"We are not, and never have been, a religious organization," Young said.
Young said that as an independent international organization, the Red Cross had to be careful not to appear to be compromised by conflicts of interest.
"Throughout our 130 year history, the Red Cross/Red Crescent movement has sought to serve all sides," he said. "It is essential that we are not seen to be linked with any political groups, religious organisations or particular communities."
"We have to stand by our principals, which include impartiality, independence and neutrality," he said.
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