Banners of LED lights in the red and yellow of the Spanish flag appeared in parts of the city, including stretches of over a kilometre alongside the central boulevard that runs past the world-famous Prado museum.
The lights are usually an important tourist attraction, but this year there are far fewer people on the streets due to the pandemic.
The cost of lighting the over 200 decorated streets is budgeted at 3.17 million euros ($3.8 million), slightly higher than the 3.08 million euros a year ago.
Plans to spend even more on the lights were scuppered by the COVID-19 crisis, the council said in a statement.
Spain forecasts economic output will fall 11.2% this year, after 2% growth last year, due to the effects of the pandemic.
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