The council for Quartu Sant'Elena, which is responsible for the area on the outskirts of the Sardinian capital where the stadium is situated, said in a statement on Saturday it could no longer authorise the use of the ground due to safety issues.
It means that if work on the stadium is not finished next week, the game could be postponed.
"Following the last meeting of the board of supervisors for public entertainment, which confirmed the stadium's shortcomings in terms of safety, the council believes that use of the Is Arenas can no longer be authorised," the statement read.
The council's statement supersedes that of the local prefecture, which on Thursday gave the club 30 days to finish the work at the ground, which is owned by the council and for which Cagliari have to pay rent.
The local public prosecutor's office is carrying out an investigation into how responsibility regarding the stadium should be shared between the club and the council.
The row over the Is Arenas has lasted months, with Cagliari's game against AS Roma cancelled in September after chairman Massimo Cellino urged fans to attend the game despite the club having been ordered to play it behind closed doors.
Cellino blamed the council for the problems, saying he had to stop work on the main stand, Sky box viewing gallery and restaurant area of the ground because of local bureaucracy.
"The council has stopped, they're not doing anything," he said.
On Wednesday the General Secretary of Quartu council, Nicoletta Ornano, also said matches could not be played there.
"It should be noted that due to the non-conclusion of the inquiry being carried out by the provincial commission for the supervision of public entertainment, it is impossible to accept the request to licence the Is Arenas stadium as it currently stands," Ornano said.
Cagliari are 14th in Serie A on 16 points, two points above the relegation places.