The Meadows Festival, which attracts more than 20,000 people every year, made a request to the licensing sub-committee to have its market operator licence fee reduced from £5,000 after organisers said the event could be cancelled.
The event was placed in the city centre council ward following boundaries being redrawn in 2017 - resulting in licensing fees rocketing.
A policy to charge much higher fees for events in the city centre will now be reviewed.
Meadows Festival organiser Callum Ross told councillors the festival has taken place for the last 45 years and is run with the support of the community.
He added: “The idea of increasing fees on us really is unsustainable at the moment.
“People say why don’t we just move it to the other side of the Meadows but the logistical challenges are great for that.
It would require three times as many stewards. If we suddenly change what’s happening, it’s going to cause chaos. We need to do something or we won’t be able to run.”
Mr Ross continued: “This sends out a message to community groups that live in the city centre who want to be part of the community that we are not supported. We are placed in the same category as big commercial businesses and we are being pushed out because of that.”
Regulatory services manager, Andrew Mitchell, who had recommended that the discount request be refused, told the committee that the event was charged £750 last year for 130 stalls following a similar plea for a reduction.
Mr Mitchell was asked what price the organisers would be charged if it was treated the same as other side of the Meadows he admitted: “I don’t happen to recall what the fee is.”
Licensing convener, Cllr Catherine Fullerton, told the organisers the council was not in a financial position to be able to reduce fees.
She said: “Last year we told you it would be the last year you were getting a discount. We are not setting a precedent here - this is a one-off.
“Our budget motion said the council will have to get full cost recovery for everything. Given you have had a year to address some of these issues and tried to go to the other side of the Meadows, I’m proposing the most we can do is give you a 10 per cent discount.”
But Conservative Cllr Cameron Rose proposed that the fee be reduced to £1,000 and for the regulatory committee to review the procedure.
He said: “Two years ago, the Boundary Commission changed the boundaries. The knock-on effect of that was to put it into a different charging structure altogether.
“The Meadows has not changed. It has been the drawing of a line that has caused this.”
His call was backed up by Green Cllr Gavin Corbett, who added: “This is a long-standing community event and I think there’s a chance we could put that at risk. I think this is a compelling case.”