"With the uncertainty of how long the country will remain at red, the decision has been made to cancel the event," Auckland Unlimited said in a statement.
Auckland Mayor Phil Goff acknowledged the disappointment of the event no longer going ahead.
"The Auckland Lantern Festival is New Zealand's largest cultural celebration, and a key component of the Auckland event calendar, especially for the Auckland-Chinese community," Goff said.
"After the cancellation due to Covid of the 2020 and 2021 festivals and other major Chinese New Year events scheduled for early next month, this year's event was highly anticipated, and we are disappointed to have to cancel it again."
Goff said however that safety had to come first given that the Omicron variant is now circulating in Auckland.
"Cancelling the Lantern Festival at this time is the right and responsible decision, he said.
Auckland Unlimited director of arts, entertainment and events Richard Clarke said it was "a major blow" to not be able to round out the city's summer season with the lantern festival.
"Our festival staff, performers, stallholders, sponsors and everyone involved in the planning were buzzing at bringing back the festival after a two-year absence," Clarke said.
"Their work, dedication and passion for the event have been monumental, and I would like to acknowledge them all."