As the first snow fell at the foot of the Italian Alps, the centre of Coccaglio presented an idyllic scene. In front of its 18th-century church, the flakes came to rest on a magnificent Christmas tree, rising almost to the height of the Roman tower opposite.

But in this town of 8,000 inhabitants between Milan and Venice, the approach to Christianity's most sacred festival has been marked in a very special way. On orders from the local council, controlled by the conservative Northern League, police have been carrying out house-to-house searches for illegal immigrants in an action dubbed Operation White Christmas. The operation is due to finish on December 25.

Some 3,000 people have marched through the town in protest at the operation, which the Vatican called "sad and distressing". But it has been endorsed by Silvio Berlusconi's government. Visiting nearby Brescia, where he announced the opening of a detention camp for suspected illegal immigrants – a so-called centre for identification and expulsion – Berlusconi's interior minister, Roberto Maroni, a leader of the League, complimented Coccaglio's mayor.

"Operation White Christmas has been carried out in other towns with other names and without arousing the same kind of clamour," he said. "These are initiatives that serve to check and combat the phenomenon of illegal immigrants. So there is no 'story' and no racism."

The migrant population has soared in Italy's industrial heartland, making it fertile territory for the League, with its xenophobic rhetoric. A League poster at the last general election showed three white sheep kicking out a black one.

Coccaglio's registered, non-Italian population rose from 177 to 1,562 in the 10 years to 2008. In Brescia, non-Italians outnumber natives in the centre, which is lined with halal butchers, African markets, Chinese bazaars and takeaway kebab shops. Suspicions exploded into fury last month in the town nearest Coccaglio, when a Moroccan man was arrested on suspicion of attacking and raping a local woman. Eyewitnesses said he risked being lynched as he was escorted from the carabinieri barracks.

Franco Claretti, Coccaglio's mayor, confirmed the police operation would end on Christmas Day but that was a coincidence and claimed the White Christmas tag was invented by a local newspaper headline-writer rather than his council.

"You will not find it in any council document", he said. "In Italy, council ordinances are valid for 60 days and this one was passed on October 27."

But critics of the operation were sceptical. "They did not deny it at the outset," said Umberto Gobbi, a radio station manager who organised the protest last month. In his view, the Northern League is playing a game of provocation and subsequent denial, intended to keep tension high. "Operation White Christmas forms part of a sort of competition to see who can be most provocative," he said.

Claretti said he tried to set the record straight when he was first contacted by the national media, but the resulting report had a more explosive element: a comment attributed to one of his councillors that "for me, Christmas is not a festival of hospitality, but one of Christian tradition, of our identity". Again, Claretti said the councillor was misquoted and that what he really said was that hospitality had to be extended all year, not just at Christmas.

In his rectory on the outskirts of Brescia, Father Mario Toffari, head of the diocesan office for the pastoral care of immigrants, lifted his shoulders and opened his arms in a classic Italian gesture of scepticism.

"If that is the way it was, all they needed to do was take it back," he said.

The League had repeatedly exploited Christian symbols for its own ends "and the symbols of Christianity ought not to be used against anyone", said Toffari.

In Brescia, recently, as in several other towns, League members handed out crosses in the street to protest at a European court of human rights ruling that displaying crucifixes in Italian classrooms was a violation of religious freedom. Elsewhere, the party has mounted campaigns for the erection of nativity scenes on council premises.

The operation in Coccaglio is the product of legislation promoted by the Berlusconi government giving mayors wider powers to flush out illegal immigrants. Under Italian law, councils can withdraw the right of abode six months after the expiry of an immigrant's residence permit if he or she cannot show an application has been submitted for renewal.Claretti said the police were delivering letters telling immigrants whose permits had expired to prove they had applied to renew them. But Toffari said the normal procedure was to post a letter inviting the recipient to go to the town hall. Sending round the police was "like saying these people could be dangerous and need to be checked in a special way". Claretti said that dispatching registered letters would have cost his council €3,000 it could ill afford.

"Besides, if there is a letter they just put it to one side; if they see a police officer, they take it seriously. As far as I'm concerned, this is a gesture of politeness. If someone has nothing to hide, he or she has nothing to fear."