The game, made by Ukrainian company Alien Games, is being investigated by authorities in Poland.
An online trailer made references to “Polish death camps” and revealed that players could either play the role of prisoners trying to escape or guards.
Alexey Kutischev, one of the developers, has now published a statement on Facebook confirming the game has been put on hold.
Trailer footage of the Cost of Freedom appears to show computer animated concentration camp prisoners being gassed and being tortured to death.
Kutischev said: “Due to widespread misinformation about the game in various TV outlets and other media, we are forced to freeze development for an undetermined time.”
However, his partner Dimitry Dybin later added: “After an attempt to destroy the game Cost of Freedom in its initial design, we thought we were going to lose the game production.
“But thanks to the fact the agitation is being lowered and we are changing the prison’s location, characters and any references to the past, the current gameplay will be saved.