Muslims seen celebrating Christmas and non-Muslims found to be organising celebrations could face up to five years jail.
However the country's non-Muslims, who comprise 32 per cent of the 420,000 population, can celebrate Christmas in their own communities on the condition that the celebrations are not disclosed to Muslims.
Imams have told followers in the tiny Borneo nation to follow a government edict last year banning celebrations that could lead Muslims astray and damage their faith, according to the Borneo Bulletin.
"These enforcement measures are . . . intended to control the act of celebrating Christmas excessively and openly, which could damage the aqidah (beliefs) of the Muslim community," the Ministry of Religious Affairs said in a statement explaining the edict that was published in the Brunei Times.
The statement said non-Muslims disclosing or displaying Christmas celebrations violated the penal code which prohibits propagating religion other than Islam to a Muslim.
The Borneo Bulletin quotes imams saying in a Friday sermon that lighting candles, putting up Christmas trees, singing religious songs, sending Christmas greetings and putting up decorations are against the religious faith.
"Some may think that it is a frivolous matter and should not be brought up as an issue," the imams are quoted as saying.
"But as Muslims . . . we must keep it (following other religions' celebrations) away as it could affect our Islamic faith," they said.
Before Christmas last year officials of the Ministry of Religious Affairs visited businesses and asked owners to remove Christmas decorations and to stop staff wearing Santa Claus hats and clothes.
Brunei's rulers do not enforce the harsh Islamic orthodoxies of countries like Saudi Arabia.
There are no sanctions for women who do not wear headscarfs and while the sale and public consumption of alcohol is banned, foreigners are allowed to import and drink it behind closed doors.
But Brunei's Sultan Hassanal Bolkiah, one of the world's richest men, last year ordered the introduction of sharia, the strict legal code based on the injunctions of the Koran, prompting boycotts and protests at hotels he owns in the United Kingdom and the United States, including the Beverly Hills Hotel.
The laws, which include amputation of hands and feet for theft and whipping for adultery, were to be phased in over three years.
But their introduction appears to have been delayed without public explanation, according to foreign observers in Brunei.