The City of London Corporation will consider legal action to oust the anti-capitalist protesters camping in front of St Paul's Cathedral, it announced today.
The corporation's Planning and Transportation Committee will meet on Friday to hear legal advice and decide whether to launch legal action to clear the demonstration.
Councillors will be briefed on the legal position at a meeting at the corporation's Guildhall headquarters tomorrow at 2pm.
The corporation called on the demonstrators to leave peacefully and said they were "damaging the integrity of their protest" by remaining.
But it will now consider mounting a legal challenge if they stay in place.
Stuart Fraser, the corporation's policy and resources chairman, said: "The long-drawn legal battle over Parliament Square has made it imperative to get the very best legal advice about how to keep the City's highways free of campers.
"That advice is now almost in place and the Planning and Transportation Committee could hear that advice as early as Friday. We must not pre-empt that committee's work.
"Of course, we fully support the right of people to express their views through peaceful demonstration, but no city can be a campsite.
"We hope commonsense will prevail and those camping around the cathedral will recognise that they are damaging the integrity of their protest by their actions - and they decide to disperse in a peaceful manner.
"But if not, we are looking at making sure we have the full range of options - including court action - ready to hand."
The protesters have vowed to fight any court action.
John Cooper QC has said he is ready to represent them.
Mr Cooper, who has previously been shortlisted for Human Rights Barrister of the Year by campaign group Justice, will offer his services free of charge.
He said a protester contacted him on the first day tents were pitched at St Paul's to ask for his help.
"The city first said the problem was a commercial one with businesses being affected, then they said the issue was fire hazard, now they are saying there is a problem with rats in the camp," he said.
The threat of legal action comes after the Bishop of London joined the row by calling on the protesters to leave.
Richard Chartres, the third most senior cleric in the Church of England, said in a statement: "The time has come for the protesters to leave, before the camp's presence threatens to eclipse entirely the issues that it was set up to address.
"The Dean and the Chapter, who are responsible for St Paul's, have already made clear that the protest should come to an end and I fully support that view."
But the protesters have vowed to remain, saying they find the threat of legal action "very worrying".
Naomi Colvin, an Occupy London Stock Exchange spokeswoman, said: "The overriding principle is a civil liberties one. The right to protest and participate in politics in a free society is sacrosanct.
"We are very keen to work with St Paul's and the Corporation of London to address their concerns. The channels of communication from our perspective are always open.
"It would be a shame if the Corporation of London were to launch legal action against a democratic and entirely peaceful protest when it's entirely unnecessary."
She dismissed health and safety issues raised by St Paul's.
"It has been demonstrated by various people that the health and safety concerns the cathedral has may not have much substance.
"We are concerned that any move to evict us could be the result of a political decision not related to health and safety and that would be very worrying."
Calling Mr Cooper "a good friend of ours", she said of the barrister: "We've been in communication with him. It's good to know he's ready and willing to help."
The doors of St Paul's have now been closed to the public for five days, but demonstrators say they are keen to allow religious worship to continue.
They are staging an evensong outside the church at 5pm today and will hold a "sermon on the steps" on Saturday.
"Representatives from many of the religious groups in London will be there. We've invited staff from St Paul's to join us for that," Ms Colvin added.
A Home Office minister warned today that if further similar protests took place the Government may have to consider taking on new powers to deal with the issue.
At question time in the House of Lords, Lord Henley said: "I think it is time for them to pack up their tents and go but we have no power to get them to go while they are on private land."
He added: "I understand the Bishop of London has asked protesters to leave and so enable St Paul's Cathedral to be reopened.
"The Government believes the protesters should comply with this request. The police are working closely with the Cathedral as they monitor the situation."
Lord Henley said the land the protesters were occupying was private, limiting the Government's ability to act.
"If problems like this persist and if we have problems that are likely to affect the Olympics or whatever, it is certainly something we will have to look at in due course," he added.