A G8 protest rally near the Gleneagles Hotel will only go ahead if insurance cover for up to £5m is put in place.
The condition has been imposed by Perth and Kinross councillors who want the executive to pay the cost of the premium, which could be up to £30,000.
The G8 Alternatives group says it cannot afford the premium for the rally in Auchterarder on 6 July and branded the decision "democracy for sale".
Scottish Socialist MSP Frances Curran said it was a "travesty".
"It's a threat to the democratic rights of the people of this country," she added.
"Children in Africa are dying because they don't have enough money to buy food and we can't protest about it because we don't have the money for the liability."
A spokesman for the Scottish Executive said that it was too early to early to give a specific response to the request.
In the past, the executive has said it would look sympathetically on requests from public bodies regarding additional costs incurred as a result of the G8.
March refused
Special meetings were called by the council to consider the applications amid growing concern over the safety of large-scale protests outside the G8 summit venue.
Protesters also wanted to march along the A9 past the five-star hotel but Tayside Police said last week they believed that the meeting point at Gleneagles station was "unsafe and unsuitable".
The march "raises very serious public safety concerns", they said. Councillors quickly decided it should not go ahead.
The proposed rally, to be held in Auchterarder Park, was approved by the council's strategic policy and resources executive sub-committee.
Police car at Gleneagles
Police plan to close off roads around the summit venue
Ian Miller, convener and SNP member for Alyth and Old Rattray said: "This council does support the right of peaceful protest. I want to make that absolutely clear."
They said that the number of protesters should be restricted to 4,500.
A council legal representative said it was normal for the authority to insist on public liability to be held by any organisation conducting business on their property.
G8 Alternatives plan to submit another application for a demonstration march.
'Legitimate demand'
SNP MSP for Perth Roseanna Cunningham said: "I would ask G8 Alternatives to accept the decision of the police and the council, however unhappy they might be about it.
"The council's request that the Scottish Executive pick up the cost of insurance is, in my view, a completely legitimate demand.
"It would be utterly inappropriate for the local people of Perth and Kinross to have to foot the bill for any damage caused, however inadvertently."
Meanwhile, it has emerged that up to 15,000 G8 demonstrators will be housed in a temporary campsite in the Niddrie area of Edinburgh.
The city will play host to the Make Poverty History march on 2 July and the Live 8 concert at Murrayfield on 6 July, timed to coincide with the Long Walk to Justice rally.
Click here to see the march route
The campsite, which will be surrounded by a mesh wire fence, will be open from 1-8 July.
Glasgow has offered to provide Edinburgh with logistical help to cope with the mass rallies.
Glasgow City Council leader Steven Purcell said: "This is a great example of Glasgow providing support and partnership to our nearest neighbour and we are happy to lend our expertise in public safety and event management if called upon."
Edinburgh City Council leader Donald Anderson said: "The city welcomes playing its part in this defining moment in history.
"It is an enormous challenge and we are working around the clock to make sure we deliver.
"We intend to ensure that events in the run up to the G8 summit pass off successfully and safely."

 http://news.bbc.co.uk/1/hi/scotland/4074872.stm