Planning officers for the council responsible for Grenfell Tower have recommended refusing planning permission for a £2.4 million community project.
Youth charity SPID has submitted proposals to refurbish and extend the community rooms in North Kensington's Kensal House estate in west London after securing the funding.
The organisation said it is a "once in a lifetime opportunity" to save the historic theatre and increase free activities following the fire in 2017 that claimed 72 lives.
But officers from the Royal Borough of Kensington and Chelsea have recommended the proposals, which have received 16 objections, should be refused.
A report states the work "would harm the special architectural and historic interest of the Grade II* listed building and wider estate" and result in the "loss of privacy and open space in the communal gardens" for residents of the 68 flats.
Labour councillor Pat Healy is taking the proposals to a planning committee in Kensington town hall on Tuesday night, where a decision is expected to be made.
SPID, which does theatre with young people from council estates, has run the community rooms for 15 years, but said the space is run-down with leaks, poor electrics and crumbling walls.
Artistic director Helena Thompson said the charity has been developing plans for four years and fears funding from the Heritage Lottery Fund, Big Lottery and the Mayor's Fund, among others, could be lost if they are not approved.
SPID said the plans have been supported by Historic England, along with those funding the project, and believes objections have been fuelled by the poor condition of the estate as a whole.