Revd Margaret McPhee made the announcement during a choir concert for primary school children from Stalham Academy in the county on Monday.
Whilst preaching at St Mary's Church she asked children what they thought the real meaning of Christmas was.
When one replied Santa she told him he was make believe.
Parents expressed their anger on social media with one saying: "Sorry my child will not attend any more church services again, she would not like it if we said there was no 'God'."
Another posted: "Absolutely disgusted, luckily we managed to come up with a round-about explanation so Santa remains real."
In a statement Stalham Academy said it had received an apology from Revd McPhee for "what she claims was an 'insensitive, off-the-cuff remark', which may have caused upset to the pupils of our academy".
It added: "As I am sure you will appreciate, the academy has no control over what the Revd McPhee has said or may say in the future.
"However, she has given us assurances that she will not be making any such comments in the future."
The vicar told the Eastern Daily Press: "As soon as the words came out of my mouth, I knew I had made a huge mistake."