Hill, 28, launched her diatribe in front of an audience of 7,500 guests at a packed Paul VI hall, used by Pope John Paul II for indoor public audiences.
"I'm not here to celebrate, like you, the birth of Christ, but to ask you why you are not in mourning for his death in this place," Hill said, reading from a prepared statement as she came on stage for her performance as part of a all-star gala concert.
"Holy God has witnessed the corruption of your leadership, of the exploitation and abuses which are the minimum that can be said for the clergy," she added, calling on the hierarchy to "repent".
Stunned hierarchy in the front row at Saturday night's concert included one of the most senior figures in the church, Cardinal Camillo Ruini, who is head of the Italian bishops conference.
An aide to Ruini, Bishop Rino Fisichella, described the singer's speech as "a rash outburst. An uneducated act showing a lack of respect for the place she was a guest and for those who invited her."
The Holy See has been widely accused of failing to respond adequately to a pedophile scandal involving priests, particularly in the United States.
The US church has been under intense fire over the policy of some archdioceses of moving known child-abusing priests from parish to parish over decades.
Hill, a former member of The Fugees and winner of five Grammy Awards, said she was not speaking as a representative of any religious organisation.
Italian press reports today said her attack was unlikely to be included when the concert is broadcast on Italian television on December 24, Christmas Eve.
Hill flew back to New York last night unrepentant. She said: "What I said was the truth. Is telling the truth bad manners? What I asked was the church to repent for what has happened."
What Hill Said
"I am sorry if I am about to offend some of you. I did not accept my invitation to celebrate with you the birth of Christ. Instead I ask you why you are not in mourning for him in this place?I want to ask you, what have you got to say about the lives you have broken?What about the families who were expecting God and instead were cheated by the Devil?Who feels sorry for them, the men, women and children damaged psychologically, emotionally and mentally by the sexual perversions and abuse carried out by the people they believed in?Holy God is a witness to the corruption of your leadership, of the exploitation and abuses which are the minimum that can be said for the clergy. There is no acceptable excuse to defend the church."