Scrap metal and wood were being used to build the tree, intended to be 100m (328ft) tall in the capital Colombo.
Archbishop of Colombo Malcolm Ranjith's objection, more than three months after work began, called for the money to be spent on charity work instead.
While fewer than 10% of Sri Lankans are Christians, Christmas remains popular.
The tree was being built on the esplanade in Colombo. The idea to use recycled material came from a minister and former national cricket captain, Arjuna Ranatunga.
He said it would help erode religious and ethnic strife.
The money came from a welfare fund that he runs, with the labour force reportedly provided by volunteers.
Announcing the decision to drop the project on Wednesday, organising committee chairman Mangala Gunasekara said the scheme had not received state funding and was undertaken to promote national unity, using Buddhist, Hindu and Muslim workers.
"We thought it would be a great idea to... celebrate Christmas," he said.
"When we put our idea to the minister he agreed. We Buddhists worked voluntarily to build this."
Mr Gunasekara added that when the project was initiated in August, a letter was sent to Cardinal Ranjith informing him about the plan.
Several Roman Catholic priests attended the opening ceremony.
Now the archbishop has attacked it as a waste of cash which would be better given to charity.
The project initiator and main architect, HDM Nanayakkara, broke down in tears during the press conference on Wednesday at which the abandonment was announced, saying his dreams had been shattered.
But the organisers said they had to drop the project in deference to the archbishop's views.
Construction work on the tree began three months ago, with the intention of making a Guinness World Record, the Sri Lankan Daily Mirror reported.
The estimated cost was 12m Sri Lankan rupees ($81,000; Â£64,000) with about 6m rupees already spent on construction costs, it reported.
The BBC's Azzam Ameen in Colombo says that there has been a mixed reaction on social media to news of the abandonment.
Some commentators commended it, arguing the tree was a waste of money while others complained the Church was wrong to criticise such a well-publicised project at the last minute, when most of the hard work had been completed.
Work to build a giant artificial Christmas tree has been abandoned in Sri Lanka after objections from the island's top Roman Catholic clergyman.