"[The] fire alarm went off due to the smoke machine at the children's rave and everyone was in the process of clearing the room.
"He came changing [sic] in, ripped his hat and beard off in front of 50 odd kids and started shouting and swearing at people to leave.
"You should be ashamed of yourself acting like that in front of children. There is no way he should be allowed near a child."
Helen Brook, who also witnessed the incident, added: "Bad language is never called for. He continued his unfortunate choice of words while we were waiting outside."
Pictures posted on social media appear to show the Santa stood outside the venue, with his beard lying on the pavement.
FESt St Ives, who organised the grotto, said: "Last Sunday during a family rave event (not a FESt event) in the Corn Exchange, St Ives, the fire alarms were activated by smoke in the Charter Hall.
"Santa was upstairs in his grotto, an event organised by Festival Events St Ives (a voluntary organisation) and immediately assisted in the evacuation of the building.
"FESt wish to apologise for any offence or distress caused to parents and children by the attempts to ensure all visitors and staff had exited the building and were safe."
