Sydney's Santa Clauses have instead been instructed to say "ha ha ha" instead, the Daily Telegraph reported.

One disgruntled Santa told the newspaper a recruitment firm warned him not to use "ho ho ho" because it could frighten children and was too close to "ho", a US slang term for prostitute.

"Gimme a break," said Julie Gale, who runs the campaign against sexualising children called Kids Free 2B Kids.

"We are talking about little kids who do not understand that "ho, ho, ho" has any other connotation and nor should they," she told the Telegraph.

"Leave Santa alone."

A local spokesman for the US-based Westaff recruitment firm said it was "misleading" to say the company had banned Santa's traditional greeting and it was being left up to the discretion of the individual Santa himself.