From Fatawah Islamiyyah Vol. 1 and 2
Published by Darussalaam, Kingdom of Saudi Arabia
Is it lawful for the Muslims to celebrate like Eid, the remembrance of the Prophetic biography on the 12th night of Rabi al-Awwal in the Masjid, on the occasion of the Prophet's birthday without interrupting the work of the day? We have differed over the topic. It was said it is a good innovation and others said it is a bad innovation.
It is not permissible for the Muslims to celebrate the birthday of the Prophet (sallallahu alaihi wa-sallam) on the 12th night from Rabi al-Awwal or any other time because the celebration of the Milad is an innovation in the religion. The Prophet (sallallahu alaihi wa-sallam) never celebrated his birthday in his lifetime, and he was the one who brought us this religion, and the one who conveyed the laws to us. He never ordered anyone to do that, neither did the Rightly Guided Caliphs after him, nor his companions nor those who faithfully followed them during the virtuous generations. So it is known that it is an innovation about which the Prophet (sallallahu alaihi wa-sallam) said: "Whoever innovates in this matter of ours, that which is not from it, shall have it rejected." [Saheeh Muslim (1718)]
It is agreed upon and in one of the versions recorded by Muslim, as well as one that al-Bukharee mentioned without a complete chain yet in a manner that indicated approval: "He who does a deed which is not from this matter of ours (religion), it shall be rejected." [Saheeh Muslims (1718)]
Milad is not something that the Prophet (sallallahu alaihi wa-sallam) ordered, rather it was introduced into the religion by people of the later generations, thus it is rejected. The Prophet (sallallahu alaihi wa-sallam) used to say on Friday Khutbah, "The best of speech is the Book of Allah, and the best guidance is the guidance of Muhammad, and newly invented matters are misguidance." [Saheeh Muslim (867)] and an-Nas'aaee (1579) included in his narration: "and every misguidance is in the Fire."
The celebration of Milad should be replaced with studying the events associated with his birth from his Seerah (biography) during the time of ignorance and after Islam. There is no need to celebrate his birthday, as it is not legislated by Allah, nor by His Prophet, and has no legal proof.