The animal rights group said the number of wild animals used for such events is increasing so it has started its first dedicated campaign on the issue.
Campaigner Todd Bradbury said: "There's always been a problem with animals used around Christmas but this year we have seen a big increase in the amount of events featuring animals, such as penguins, which seem very popular this year. That could be because of films or just because people like penguins more than reindeer.
"The issue is these animals are wild and have complex needs that can't be met in the high street, shopping centre or garden centre. There are high levels of noise and other stress inducers and we feel these events put on for family entertainment shouldn't be detrimental to animal welfare."
Animal Aid said local authorities as well as businesses are using more live animals in displays. "Wild animals such as reindeer and penguins are being lugged around the country in trailers under stressful and unnatural conditions. Not only are they prevented from exhibiting their natural behaviour, noisy and exuberant Christmas crowds are the last things they should be exposed to."
The charity is calling for the public to report such events and try and get them stopped. People for the Ethical Treatment of Animals called on Bents Garden Centre to keep reindeer out of its holiday activities, saying: "Using animals in these events sends a damaging message to young people that animals are little more than living props."
Bents replied: "We take animal welfare and our duty of care extremely seriously. We have been visited by reindeer at Christmas time for the past five years and work very closely with their breeders to ensure they are cared for at all times while at the centre. The reindeer are sixth-generation British animals, born and raised in the North East. We have checked with the RSPCA, which has confirmed that as long as all the animals' requirements are met they do not have an issue with the event."