Shaykh Ibn ‘Uthaymeen (may Allaah have mercy on him) said:
With regard to those in which the shape is incomplete, in which there is only a part of the limbs or head, but the shape is not clear, there is no doubt that these are permissible, and these are like the dolls with which ‘Aa’ishah used to play. (Narrated in al-Bukhaari, 6130; Muslim, 2440).
But if the shape is complete, and it is as if you are looking at a person – especially if it can move or speak – then I am not entirely at ease with the idea of them being permissible, because this is a complete imitation of the creation of Allaah. It seems that the dolls with which ‘Aa’ishah used to play were not like this, so it is preferable to avoid them. But I cannot say that they are definitely haraam, because there are concessions granted to young children that are not granted to adults in such matters. It is natural for young children to play and have fun, they are not obliged to do any of the acts of worship so we cannot say that that they are wasting their time in idle play. But if a person wants to be on the safe side in such matters, he should cut off the head or hold it near the fire until it softens, then he should press it until the features disappear.