Gardai believe a woman carried out the arson attack just as children were leaving an adjacent school.
The seaside community is now scrambling to restore the parish church in time for Christmas.
It is thought the woman entered the church and lit two candles, which were then thrown into the nativity scene.
The crib, which contained over 100 figures, burst into flames and the fire quickly spread, causing significant smoke damage to the church.
The woman fled, but is understood to have later presented herself to local gardai. No arrests have been made.
Sources confirmed the fire happened as children from the school were leaving to go home. Several parents were outside the church waiting to collect their children when smoke starting seeping out of a window.
The fire has caused significant damage to the church, but luckily no one was hurt.
Speaking to the Herald, local parish priest Fr Donal Roche said that a "mammoth amount of work" was underway to restore the church for Christmas services. "We have an army of people cleaning, repairing and working non-stop to get the church back in order and we confident we will do that," he said.
"The most devastating thing for the community is the loss of the crib, which is extremely popular with children."
In a statement to the Herald, a garda spokesman said: "A woman aged in her 40s is assisting gardai. Smoke and water damage was caused to the building, which is expected to be open again in time for Christmas services."