Sony Playstation's 'Resistance: Fall of Man' uses the interior of the cathedral's nave without permission.
The game, which has sold more than one million copies, shows a virtual shoot-out in the cathedral's nave in which hundreds of soldiers are killed.
A Sony spokesman said that permission had been sought where necessary.
However, the Church said Sony did not ask for permission to use the cathedral and it has demanded an apology and the removal of the game from shop shelves - otherwise legal action will be considered.
Sony has not returned calls from Church officials.
'Beyond belief'
The Bishop of Manchester, the Rt Revd Nigel McCulloch, has described the decision to feature the city's cathedral as "highly irresponsible" - especially in the light of Manchester's history of gun crime.
"It is well known that Manchester has a gun crime problem," he said.
"For a global manufacturer to re-create one of our great cathedrals with photo-realistic quality and then encourage people to have guns battles in the building is beyond belief and highly irresponsible.
"Here in Manchester we do all we can to support communities through our parish clergy. We know the reality of gun crime and the devastating effects it can have on lives. It is not a trivial matter."
The Dean of Manchester Cathedral, The Very Revd Rogers Govender, also hit out at Sony's decision to feature the cathedral, claiming it was "undermining" the work of the church.
"We are shocked to see a place of learning, prayer and heritage being presented to the youth market as a location where guns can be fired.
"This is an important issue. For many young people these games offer a different sort of reality and seeing guns in Manchester Cathedral is not the sort of connection we want to make.
"Every year we invite hundreds of teenagers to come and see the cathedral and it is a shame to have Sony undermining our work."
No-one from Sony was available for comment.
However, David Wilson, a Sony spokesman, told The Times newspaper: "It is game-created footage, it is not video or photography.
"It is entertainment, like Doctor Who or any other science fiction. It is not based on reality at all. Throughout the whole process we have sought permission where necessary."