But the Queenstown Lakes District Council says it is educating stallholders and will only enforce the rules when needed.
Craft sellers, buskers and food vendors operate on the Queenstown waterfront most days.
But the stallholders, many of whom depend on what they sell at the market for their livelihood, say the council was forcing them out as it brought in rules which have been lying dormant for many years.
Longtime stallholder Jan Nicholson said the council had been handing out licences for years to stallholders without complaint.
She admitted a surge in applications in the past six months had led to the area being crowded at times.
The council had enforcement officers come down and after a couple of meetings, the stallholders were told, a couple of days before Christmas, that the long-ignored council rules would be introduced around the markets, starting two days ago, she said.
Those rules state that market stalls had to be 50m apart and moved every hour.
"We are only on 200m or so piece of ground. So that would mean only four of us would be able to operate," she said.
"And how are we going to survive with those sort of rules?
"We are all terrified about what is going to happen. There are 40 of us crafters. Not all of us turn up every day, but we stand to not be able to go there."
She turned up on Wednesday not intending to sell, but to observe what happened and said there was just under 10 stallholders there, with nine being food vendors.
No-one from the council appeared on Wednesday or yesterday.
"So what are supposed to do now? Can we just work as normal?"
She admitted the area was overcrowded but it was too easy to get a licence from the council. An aspiring vendor just had to apply on the council website and the licence would be granted the next day, she said.
She suspected the clampdown was because shopowners were losing sales to the market.
Another stallholder, who declined to give his name, said too many people were selling at the market and it was becoming crowded. But the council had created the problem by giving out licences too easily.
Many people depended on the market for their livelihood, and the new rules would destroy their income.
Many were selling things not suitable for a market, such as cheap mobile phone covers.
It needed to return to a true market, which every tourist town had.
A council spokesman said staff had been working to educate traders and buskers on the waterfront.
The action did not relate to the Queenstown Markets held every weekend at Earnslaw Park.
Traders and buskers on Queenstown’s waterfront were required to be 50m apart and to move to a new location every hour, the spokesman said.
Staff continued to monitor the area along the waterfront and while they would enforce the bylaw where required, the council was also gathering information to help inform any further steps it may need to take.
