Zombies cause Block lag in 1.6

Whenever theres more then 2 players connected to my server and you get zombies attention theres block lag that keeps getting worse.

What I expected to happen was...:
Not lag

What actually happened was...:
block lag

Steps to Reproduce:
1. My rented server is 4GB 4 cores from creeperhost.
2. ...I turn game mode to peaceful 0 lag runs perfectly.
3. ...I change difficulty to hard get a zombie's attention block lag starts up
more zombie more block lag
4. Change difficulty back to peaceful block lag is gone instantly