It is also close to a track known as Cavendish Road, a path that was widened by Indian and New Zealand troops to allow Allied tanks to attack German positions during the campaign to take the hill.
The land is owned by the Abbey of Monte Cassino, the 6th century retreat founded by St Benedict. It was a key strategic objective for the Allies as they advanced north towards Rome. An obelisk marking the sacrifice made by the Polish troops looms over the Christmas Village, which includes an archery range, drinks stands and a sign proclaiming "Polo Nord" - the North Pole.
"This is a sacred place and should not be used for any commercial activities," Salvatore Avella, the president of a local heritage group, told the Daily Telegraph.
"It should be respected. The men who fought here came from Britain, America, India, New Zealand, Poland, France, Morocco and elsewhere."
The Christmas Village blocked access to war monuments, he said.
The Polish embassy in Rome has sent a formal letter of complaint to the Italian Foreign Ministry. The attraction offended "the dignity of the most important Polish monuments in Italy", it said.
The abbot of the monastery, Donato Ogliari, said he could see no harm in the area being used for an attraction that brought joy to children and their parents.
Thousands of British and Commonwealth soldiers died during the campaign but their cemetery is in the valley below Monte Cassino, further away from the Christmas Village.