Havering council in East London has said it would be “unwise” for the menorah, a nine-branched candelabrum lit during the eight-day Jewish holiday, to be installed outside the town hall in Romford.
Officials said going ahead could “risk further inflaming tensions within our communities”.
It will still mark the beginning of the religious festival on December 7 with a “temporary instillation and event”.
Bosses called accusations of antisemitism “categorically untrue”.
The council said: “In light of escalating tensions from the conflict in the Middle East, installing the candelabra now will not be without risk to the council, our partners, staff and local residents.
“We would also be concerned with any possible vandalism.
“Havering Council does not take sides in the current conflict and regrets the loss of life, injury and distress on both sides.
“We have informed our community and faith partners and will continue to provide support to all our communities and work with the local police to ensure that everyone feels safe in Havering.”