Organisers had wanted 5000 people to march to the Scottish Exhibition and Conference Centre in Glasgow to coincide with an appearance by LibDem leader and Deputy Prime Minister Nick Clegg.
Although the LibDems were opposed to it as a party, the protesters, from organisations ranging from housing associations to trade unions, are targeting the conference because of the party's role in the UK Coalition Government.
They had also intended the protest to be similar to the demonstrations outside the Labour Party conference at the SECC in 2003 when thousands gathered to protest against the Iraq War.
Although a decision has yet to be formally made, Police Scotland has already told the organisers and Glasgow City Council that it intends to restrict the number picketing the conference to just 20.
The Bin the Bedroom Tax organisers want to march from Glasgow Green, through Gorbals, south of the city centre, and on to the SECC on September 14.
However, as Glasgow Green is already booked for a wedding event, the organisers have been told they would need to use an alternative route.
They have been given the option of walking from Elder Park in Govan, across the Clyde Arc Bridge and past the SECC where a delegation could then protest, with the main parade finishing at Kelvingrove Park.
A Loyalist parade, by a new group called Regimental Blues which describes itself as a "pressure group standing for the Protestant Loyalist Community of Scotland", is also scheduled for the city centre at the same time.
However, council sources insist this is not a factor in wanting the protest march changed.
According to sources, the ongoing construction of the Hydro Arena, which is in the area of the SECC, and the use of other areas for security purposes are major reasons behind the police preventing the mass picket.
The Hydro is due to open with a concert by Rod Stewart on September 30.
It is also "not in the council's gift" to allow a protest within the SECC, which is privately run despite being 90% owned by the authority.
Last night, one of those involved in organising the event said: "We haven't accepted the council's alternative route. Why can't this be done? In 2003 up to 50,000 people were outside the SECC protesting at the Labour Government against war in Iraq.
"The whole area is all car parks so where there's a will there's a way. We don't have to accept the rationale here and it all appears to be smoke and mirrors by the police and council, which owns the SECC practically.
"And the last I understood, the police were accountable to the public and facilitated protest, not just the LibDems. We reconvene on Monday and are hopeful of a result."
A Police Scotland spokeswoman said: "Following discussions between demonstrators, Glasgow City Council and Police Scotland discussions are continuing to find a suitable route for the demonstration."
A council spokesman said talks were ongoing, adding: "A march of 5000 people was proposed from Glasgow Green to the SECC with a rally outside the venue."
The bedroom tax, which reduuces the amount of benefit people can receive if they are deemed to have a spare bedroom in their council or housing association home, is controversial, and has attracted earlier protests in Glasgow.
Coalition ministers say it is necessary to encourage those with a spare bedroom to downsize and free up housing for others.
But figures released by councils last week showed there is accommodaton available for fewer than one in 10 affected households. Last month, the Department for Work and Pensions announced it was doubling funds for those struggling with the tax to £65 million.
Reports suggest that Labour could pledge to scrap the bedroom tax if it wins the next General Election, due in 2015.