Members of the town council last month agreed the Friends of Wiessmannfreunde car club, who come from Tavistock's twin town of Celle, could park their vehicles on the square while they had lunch at the Bedford during their visit on Thursday May 21.
But Devon County Council, which owns the square as it is technically part of the highway, says the decision must be overturned due to safety concerns.
Traffic engineer Paul Marshall told the council via email: 'I do not regard the paved area of Bedford Square as an appropriate or safe location to permit 20 German sports cars to be driven on, parked and then driven off as part of a twinning event.
'The agreed terms of reference are very clear. No motor event should be allowed on Bedford Square is the recognised guideline.'
Cllr Philip Sanders, during last week's full council meeting, said: 'I find the correspondence from the county to be bordering on the offensive, and certainly ridiculous.
'How on earth can anyone with a brain think there could be a health and safety issue? I can accept there might be a small amount of danger when they are maneouvring on and off the square, but using health and safety legislation is an insult to our intelligence and I resent that.
'It's not a charity event, it's not a commercial event, it's a twinning event and we are being hospitable to our guests.
'This square is part of Tavistock and if we can't make these sort of decisions I am not sure there's any point us being here.'
Cllr John Sellis said: 'I think it's absolutely ridiculous that the council has the temerity to say it's a health and safety issue.
'We are very well received when we go there (to Germany) — this will be quite a snub in the face for them.'
Cllr Brian Trew asked if the town had to be 'hidebound' to whatever the county council dictated, and asked what rationale it was using in suggesting there was a health and safety problem.
Cllr Mandy Govier urged caution in its dealings with the county.
Cllr Govier said: 'Would it really bother highways if there was nothing on the square? They are based in Exeter. This is Tavistock, it's our town and we ought to think of the consequences.
'They could take away our management because they say we can't be trusted and then we lose everything, the farmers' market, the lot. They could actually affect the residents of this town quite a lot.'
Cllr Ted Sherrell said it was 'crucial' that the town council, which manages the square on behalf of the county, retained its control over the area.
Cllr Jenny Metcalf said as the county appeared to be 'adamant' about the German cars, it would be better to allow the guests to use the Guildhall Car Park, which would be 'less contentious and equally hospitable'.
Town clerk Roger Howard reminded the council the visitors had agreed to pay for parking if necessary.
The council is to send a letter immeditaely to the county, asking that officers re-visit Tavistock and review the policy regarding use of the square by vehicles.
If the county was still insistent the Germans could not use Bedford Square to park their cars on, the council would close Guildhall Car Park to the public for the duration of the visit.