The girl's mother decides, and as the child wants to be at home with her mum, step-dad and little sister, there is no problem.
Your daughter tells her former in-laws that their grand-daughter will spend Christmas at home with her family, and please will they not in future extend any invitations at all to their grand-daughter without consulting her mother first, from now until the girl's 18th birthday.
The grandparents may go into a huff, but they have the most to lose here, as the child's mother has a perfect right to decide when or if they may see their grand-daughter.
It is to be hoped these grand-parents acted without thinking things through, but that is bad enough. Far worse if they get away with this, because what else will they in future give their grand-daughter permission to do that her mother could reasonably object to?