A US town has decided to remove an illuminated cross from its Christmas tree after a legal case that prompted a warning by Franklin Graham that America's "war on Christmas" is still on. 

In a Facebook post, Graham referred to an action by the American Civil Liberties Union (ACLU) against a small town in Indiana. Acting on behalf of Knightstown resident Joseph Tompkins, who objected to an illuminated cross being placed on top of the town's Christmas tree, ACLU's lawsuit documents said that each day Tompkins was " forced to come into direct and unwelcome contact" with the cross on top of the Christmas tree and that it has caused him "irreparable harm."

Graham said: "I hope this town will stand strong and not let one man's objection override their celebration of the true meaning of Christmas. The ACLU wants to remove God from everything—our constitution doesn't require that. Jesus Christ came to earth to pay the penalty of sin for mankind on the cross. That's what CHRISTmas is all about!"

However, having initially erected the cross the council concluded it could not win what was expected to be a costly lawsuit. It said in a Facebook post: "It is with regret and sadness that the Knightstown Town Council has had the cross removed from the Christmas tree on the town square and is expected to approve a resolution at the next council meeting stating they will not return the cross to the tree."

According to IndyStar, Ken Falk, legal director of the ACLU of Indiana, said the decision was a win for the First Amendment. "We're obviously very happy and glad the issue could be resolved," he said, adding that Tompkins "just feels very strongly about the establishment clause, and people tend to think this is an attack on religion," Falk said. "All this is, is an effort to show the government does not have an establishment of religion."

However, local Knightstown residents reacted angrily to the council's decision. A Fox 59 news report showed them protesting the removal of the illuminated cross and handing out wooden crosses to passers-by. Wooden crosses were also place in the lower branches of the tree. According to one resident, more than 300 crosses have been made.

Conservative Christians have frequently condemned what they say are attempts to secularise the Christmas holiday by removing religious references to it in official displays and communications.