Alton Town Council has spent £20,000 on the display, which has the giant Alpine rodent as its centrepiece.
But some residents of the Hampshire town have questioned the choice, which follows last year's display featuring a Santa hat, querying its links with the Christmas story.
Emma English wrote on the council's Facebook page: "I just don't understand! Whatever it is, it has no relevance to Christmas, it's embarrassing and just plain ugly. I struggled to like the
Christmas hat we had last year but this is another low."
Carole Samuda added: "I could understand it if we had some connection to ski-ing but it seems a bit of an odd thing for Alton to have."
But others were more supportive, with Caroline Wren saying: "I think it's fantastic, the children of Alton will love this and Christmas is for them after all."
And Sara Cantello added: "I think Marmite is a great name for it because people will either love it or hate it, I think it's great."
A council spokeswoman said the design was chosen "to bring a smile to people's faces, particularly the children".
She added: "We realised that people were really keen to take selfies with it and it was definitely a talking point.
"Marmite this year is most certainly a talking point and has had over 25,000 views on our Facebook page alone."
The spokeswoman said the marmot was chosen over alternative designs of giant baubles or a polar bear.
She explained: "The marmot was felt to be the most unusual, quirky, and was the best value."