A Sydney RSL has cancelled a war-themed video game tournament, in which players shoot dead their opponents to win cash prizes, after complaints in the lead-up to Anzac Day that it was inappropriate and disrespectful to war veterans.

The tournament, based on the popular video game Call of Duty: World War II, was to be held at Castle Hill RSL in Sydney's north-west on May 8 — less that two weeks after Anzac Day.

However, veterans complained to the NSW Minister for Veterans' Affairs, David Elliot, that the tournament was "distasteful" and "inappropriate".

"I've never played the game but I understand this is a game of skill and you go into the virtual reality and kill the enemy," Mr Elliot said.

"In this case, Castle Hill RSL is offering up to $300 in prize money if you kill enough people."

Mr Elliott said there were plenty of entertainment options for an RSL to provide and that it was a "strange" choice for the RSL.

"I do think promoting war as entertainment a week after Anzac Day, in front of veterans and war widows is probably just stepping over the line," he said.

Mr Elliot said he had "informally" expressed his concerns to the RSL movement and had spoken to the NSW Minister for Racing Paul Toole about the issue.

"I've told [him] that my interpretation of the regulations from the Department of Gaming and Racing are that games cannot be distasteful and I think that the concerns raised by my constituents that it could be deemed as distasteful are justified," he said.

Mr Elliott, who is a former army officer and former peacekeeper, said that he was a big supporter of the RSL, however he was morally obligated to raise the concerns of his constituents.

Tournament cancelled and promotions removed

The Group chief executive officer of Castle Hill RSL, David O'Neil, said the club had run several eSports events in the past "without incident" but now accepted that "the WWII focus of this promotion is not an appropriate one for an RSL club".

"As an organisation, we support and respect our veteran community and the last thing we'd want to do is to offend anyone," he said.

Mr O'Neil said the club had removed all promotional material surrounding the event and would not run similar promotions in the future.

The company behind the tournament, Video Gamers League, hosts "E-sport tournaments" in which players compete for prizes playing video games.

The company's website boasts that it has hosted more than 60 events in entertainment venues "attracting large crowds competing for big prizes".