Police allowed the Saturday afternoon event on condition it takes the “form of a public meeting” and not a march, Hong Kong Pride Parade said in a statement on Facebook.
The event will be held across the afternoon at a public square on Hong Kong island.
The move comes with violence spiking as protests enter a sixth month, with protesters bringing much of Hong Kong to a standstill since Monday.
Prominent LGBT lawmaker Ray Chan decried the ban on the parade through the city’s commercial heart — the key element to a global tradition celebrating equality.
“The pride parade has always been orderly, peaceful and well-disciplined,” he said.
“There is no reason for the police to reject the pride parade application… It has nothing to do with the recent protests.”
The event has previously been held in a carnival-like atmosphere with members of the lesbian, gay, bisexual and transgender community and supporters parading through the city centre.
Foreign embassy officials, tourists and city’s lawmakers have participated in parades in recent years in an Asian city renowned for its relatively progressive values.
The parade is the latest casualty in a growing list of banned, cancelled or postponed events in Hong Kong’s normally packed social calendar.
The WTA Hong Kong Open, Oxfam’s annual trail run fundraiser as well as concerts by acclaimed K-Pop acts and comedians have been pulled as the city reels from the protests.
Organisers of others such as music festival Clockenflap, which starts next Friday, have vowed to press ahead despite the political crisis.