Leicester City Council said if no site could be found for the As-salaam Trust then negotiations on the sale of the lease would resume.
About 200 people attended a demonstration at Thurnby Lodge last week to oppose the group’s plans.
The As-salaam Trust said it was sad the community could not work together.
It said its community centre aimed to provide food sharing services, drug and alcohol advice and education to make community life better for everyone.
Mohammed Lockhat, from the As-salaam Trust, said: “We are in discussions with the council.
“We are sad that we cannot work together as a community. We would love to, we’ve been trying to, and we are continuing to do so within our limits at the moment.
“The protests are supposed to be directed at the council, but on many occasions they haven’t been. It has been quite intimidating for many of our members.”
A spokesman for the council said the it was trying to resolve the situation as best it could taking into account all local concerns.
City Mayor Peter Soulsby said the attendance of the British National Party at last Friday’s demonstration “was very unwelcome indeed”.
He said: “They have no part in our local community… we don’t need them to cause trouble.
Mr Soulsby said he met with local residents and members of the trust and told them officers would look at all of the options available before any agreements were made.
He said he would meet them again towards the end of September when officers have completed that work.
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