The former mining town of St Just, near Land's End, has been ordered to remove the crest from its road signs, town hall and official notepaper unless it pays the registration fee.
The College of Arms was tipped off after St Just's Town Council started using the logo last year. It ruled it was a coat of arms and needed approval.
St Just Mayor Roy Lee is baffled by the demand and has contacted St Ives' Tory MP, David Harris, to challenge the ruling.
The College of Arms said heraldic law dating back to the 16th century gave it the power to control new coats of arms. It hopes the case will not become the first to go to a Court of Chivalry since 1952.
St Just's town emblem was created by retired designer Alan Keith-Hills and features the local lighthouse inside the crest with miners' hammers, a bushel of wheat, and a fish - symbolising local industry.
St Just Town Council, which represents the 5,000 inhabitants, is furious. Hotelier Mr Lee said: "We decided we wanted an emblem to give the town its own identity."
Timothy Duke, of the College of Arms, said it had a legal duty dating back to a Royal Charter of 1555 to monitor coats of arms to make sure no two were the same. "We exist to police the system and maintain records," he said.Reuse content