The UK foreign office said on Friday that Ahmadinejad has made a series of anti-Semitic statements and could cause "offence and bemusement" not only in Britain but also abroad.
In his message Ahmadinejad said the world's troubles are rooted in a rejection of God and if Jesus Christ lived today he would stand up against bullying powers.
"If Christ were on earth today, undoubtedly he would stand with the people in opposition to bullying, ill-tempered and expansionist powers," he said.
"The crises in society, the family, morality, politics, security and the economy ...
has come about because the prophets have been forgotten, the Almighty has been
forgotten and some leaders are estranged from God," Ahmadinejad said.
Dorothy Byrne, Channel 4's head of news and current affairs, said Ahmadinejad's address was chosen because Iran's relations with the West would likely remain a significant global issue in 2009.
"As the leader of one of the most powerful states in the Middle East, President Ahmadinejad's views are enormously influential.
"As we approach a critical time in international relations, we are offering our viewers an insight into an alternative world view."
A Church of England spokesman said: "We are not keen to contribute to controversy which only serves to raise interest in this broadcast. However, many Christians will hope and pray that some of President Ahmadinejad's words are translated into actions by his government, especially in terms of the treatment of Christians in his own country."
The Board of Deputies of British Jews, which represents the Jewish community in the UK, said the broadcast was offensive.
"To invite him to deliver a Christmas message, even a so-called alternative one, fills me with disgust," Henry Grunwald, the group's president, said.
The Israeli ambassador to London, Ron Prosor, condemned the speech as a "bogus message of good will".
"That [Channel 4] should give an unchallenged platform to the president of a regime which denies the Holocaust, advocates the destruction of the sovereign state of Israel, funds and encourages terrorism, executes children and hangs gay people is a disgrace," he said.
Ahmadinejad, speaking in Farsi, blamed society's problems on humanity's rejection of religion.
He predicted that Christ will return "with one of the children of the revered Messenger of Islam and will lead the world to love, brotherhood and justice".
"Today, the general will of nations is calling for fundamental change," he said.
"The prerequisite to this change is a change in goals, intentions and directions.
"If tyrannical goals are repackaged in an attractive and deceptive package and imposed on nations again, the people, awakened, will stand up against them."
For her part, Queen Elizabeth II, 82, urged people not to "lie down and accept defeat" but to draw strength from loved ones.
She made an apparent reference to last month's attacks in India's financial hub Mumbai which left close to 170 people dead in the message, which she writes herself.
"Christmas is a time for celebration, but this year it is a more sombre occasion for many," she said.
"Some of those things which could once have been taken for granted suddenly seem less certain and naturally give rise to feelings of insecurity.
"People are touched by events which have their roots far across the world. Whether it is the global economy or violence in a distant land, the effects can be keenly felt at home."