The 6-foot parol, or lantern, has a Philippine flag design, the Philippine Inquirer reported. It is on Esperas Street, which gets its name from the Spanish word for hope.
Ronron and Ronrey Magdua, 19, spent 10 days building the lantern. They used money they earned working for the Tzu Chi Foundation.
"We just want to remind people that we can rise again," Ronron said.
Tacloban and the surrounding area were devastated by the typhoon known in the Philippines as Yolanda and elsewhere as Haiyan. The Magduas put their parol on a vacant lot once occupied by a house that was washed away, killing the elderly couple that lived there.
Residents said their Christmas dinners would be whatever was left of supplies doled out by relief agencies.
Archbishop Guiseppe Pinto, the papal nuncio, was to attend the Christmas Eve mass in Palo Cathedral, which lost its roof in the storm.
"We'll have a simple celebration," Monsignor Bernardo Panteri said. "You notice there's not much decor around town."