Milch-Sheriff said she does not want it for herself, and aims to donate it to Israel's Yad Vashem Holocaust memorial.
"I would like the diary to be in the best hands and in exhibitions, so that people, including family members, will be able to see it," she said.
The document is a snapshot of Nazi Germany's World War II occupation of Poland, which became the epicentre of its drive to wipe out Europe's Jews. It also bears witness to Milch's personal suffering. In one entry, he recounts the shooting death of his three-year-old son -- who would have been Milch-Sheriff's half brother.
But Polish officials officials say they are bound by strict rules covering historical records -- including those made by private individuals.
"The diary of Baruch Milch is important evidence of the past, a document presenting the life and tragic fate of Polish nationals of Jewish origin," national archive chief Slawomir Radon said in a statement.
"It is an archive document and, as such, cannot be taken from Poland permanently," he said.
A long history of war and occupation -- and consequent destruction -- means Poland guards its remaining national archives hawkishly.
Milch, a doctor, wrote the daily while being hidden by Poles who faced death if found out.
Between July 1943 and March 1944, he recounted his pre-war life and also detailed atrocities which claimed his entire family, including the tiny son.
Pre-war Poland was Europe's Jewish heartland, with a thriving community of some 3.2 million, or 10 percent of the population.
Around half of the six million Holocaust victims were Polish Jews. Most perished in death camps the Nazis set up in Poland, such as Auschwitz-Birkenau.
After the war, many of the few hundred thousand survivors headed to what is now Israel. Milch and his second wife emigrated in 1946, and Milch-Sheriff was born there.
Before leaving, he gave his diary to a Polish Jewish group recording Holocaust history.
"He realised his records constituted an important document and that is why he entrusted them," Eleonora Bergman, head of the Jewish Historical Insitute, told AFP.
But Milch-Sheriff said her father had wanted the diary kept safe temporarily.
"The only testimony to what happened to his family and friends was there in his diary, and he was afraid that if he took it with him, it would get lost, damaged or destroyed," she said.
Milch died in 1989.
Towards the end of his life, he wrote his memoirs in Hebrew and asked Milch-Sheriff and her late sister Shosh Avigal to have them published.
Shortly after his death, a Polish researcher contacted them for permission to publish extracts of the Polish-language manuscript from the archives.
"This was the first time my sister and I heard about the original diary. My mother knew about it but never spoke with us about it until that moment," said Milch-Sheriff.
In 1990, her sister went to Poland seeking the diary, but only got a copy.
Bergman explained why.
"We are always ready to give a family a copy of documents. But the mission of our institute is to record history, often based on the private notes of individuals," she said.
Milch's family spent the next few years reconciling the Polish and Hebrew texts. Their edited version was issued in Hebrew in 1999 and English in 2003, while the original was published in Poland in 2002.
Milch-Sheriff said she is determined to pursue her claim and could turn to the European Court of Human Rights.
Polish academic and lawyer Ireneusz Kaminski is considering representing her, saying it is a test case.
"While the authorities do regard her as the heir to her father's diary, the law prevents her from enjoying its ownership," Kaminski said.
"To date, there has been no balance between the public good and ownership rights which are disproportionately limited," he explained.
Two years ago, another Holocaust diary sparked controversy.
Written by Ruth Laskier, 14 -- who later died in Auschwitz -- it chronicled three months of 1943 in the southern town of Bedzin.
A childhood friend, Stanislawa Sapinska, kept the diary secretly for decades, before revealing it to a local newspaper which published it in 2006.
It was immediately compared to the diary of Dutch-Jewish teenager Ann Frank.
In 2007, Slawinska donated it to Yad Vashem on a trip organised by officials from Bedzin, who claimed they were unaware it was against the law.