Activist Sam Watson said the tent embassy would be set up under the terms of a treaty signed in November between St Mary's Church in South Brisbane and local Aborigines.
Last Friday, Brisbane's Catholic archbishop, John Bathersby, sent a letter of termination to St Mary's priest Father Peter Kennedy.
It followed an ultimatum to the church last August in which the archbishop called the 700-strong parish "an authority to itself" and threatened to close it.
At the church, unorthodox masses are conducted, women can preach and homosexual couples are blessed.
Mr Watson said St Mary's had tended to the needs of Aborigines for decades.
"We have declared that land upon which St Mary's has been built is sacred land and we assert the fact that as Aboriginal people we have never ceded sovereignty to the British Crown," he said.
"That sacred Aboriginal land is land that should rightfully be occupied by Aboriginal people.
"Now that this schism has developed between the Catholic Church and the people of St Mary's we will stand behind the people of St Mary's and we will ... defy any attempts to remove us."
Mr Watson said the land was "very sick" when the treaty was signed but is now healing.
"We firmly believe that now the healing process has begun," he said.
"There are now fish coming back to the river, there are birds coming back."
The first Aboriginal tent embassy was set up in Canberra in 1972 and there is now a network of them around the world, Mr Watson said.
Father Kennedy said the embassy was a fantastic idea.
"They see that site as a sacred site for them," he said.
While the indigenous claim of sovereignty may be legally uncertain, the symbolic gesture was "very powerful", Father Kennedy said.
Aboriginal leader Stephen Hagan backed the embassy move in support of St Mary's.
"It reminds me of the 19th century when good Christian people who helped Aboriginal people were moved on," he said of attempts to sack Father Kennedy.
An archdiocesan spokesperson said Archbishop Bathersby did not want to comment further as he had written a letter to Fr Kennedy and was expecting a reply from him.
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(Source: GRCN)