Waiyne Jones, from Portslade, used Facebook to send out invitations to his free event.
However, the number of guests saying they would attend quickly rose to 8,000, which led Brighton council to send him a noise-abatement order.
This year's Pride takes place at Preston Park on 13 August.
It will be fenced off and ticketed for the first time to help cope with its growing popularity.
Unauthorised 'rave'Mr Jones said he had planned an alternative event for 15 or 20 people to watch the parade and then go down to the beach with a few drinks and some picnic food, in protest at the introduction of charges.
"The council seem to think that I'm organising an event like Fatboy Slim," he said, referring to a gig on the beach organised by the DJ in 2002 which attracted about 250,000 people.
In the letter from Brighton and Hove City Council, Mr Jones was told that he could be fined and even jailed for organising an unauthorised "rave".
He has now closed down the Facebook page and cancelled the event.
In a statement, the council said: "People turning up for a picnic on the beach will not be stopped from doing so. But we have a responsibility to ensure people are able to have fun in a safe environment."
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