Newsweek reports that the cancellation will impact the local economy "severely", as tens of thousands of people usually travel to the town during the Christmas season for the festivities.
However, this year's Christmas market and festival will not take place as Muslim groups continue to protest Trump's decision.
The Muslim mayor of Nazareth - the town where Jesus grew up - has announced he is cancelling Christmas events over U.S. President Donald Trump's controversial decision to recognize Jerusalem as the capital of Israel.
"We are part of one single people", he continued, declaring that the US' decision on Jerusalem had taken "all the joy" from the holiday period.
The annual celebrations are a major tourist draw and source of income for the city, which is inhabited primarily by Arab citizens of Israel, two-thirds of whom are Muslim and the remaining third Christian.
Salam's statement came as the start of the Christmas festivities was set to begin in Nazareth later Saturday with the lighting of the tree.
The Palestinian towns of Bethlehem where Jesus is traditionally believed to be born and Ramallah in the illegally occupied West Bank briefly turned off their Christmas lights in protest as well. The city is also claimed by the Palestinian population, and Jerusalem is home to some of the most sacred sites in Christianity, Judaism and Islam.
Pastor John Hagee, founder of Christians United for Israel, wrote on Facebook: "Let's unite together on this historic day to pray for our president, our nation and the nation of Israel like never before". ISIS threatened war on US soil in response to the decision, and a group of Muslim leaders in 57 countries denounced Trump's move.
He described his decision to recognize Jerusalem as the seat of Israel's government as merely based on reality.
Benjamin Netanyahu, the Israeli Prime Minister, welcomed Trump's decision as "a new and genuine milestone in the glorious history of this city".
In response, the Organisation of Islamic Cooperation has declared East Jerusalem as the capital of Palestine.
Israeli fighter jets also bombed Hamas targets in Gaza, officials said, after militants fired rockets from the region towards Israeli territory.