They said they had agreed to cut down the size of their site and cancel more than 20 acts to make sure they met newly-imposed safety, licensing and security costs.
But organisers changed their view subsequently and said the festival would go ahead with 8000 attendees, which was significantly more than the "few thousand" people previously advised to police.
"Our submissions were consistent with last year's operation", writes Mountain Sounds, referring to last year's smooth collaboration with authorities, "yet this year authorities seemed adamant to penalise us on technicalities and clerical errors".
The Central Coast event was to have witnessed peformances from Angus & Julia Stone, Courtney Barnett, What So Not, Thundamentals and Nothing But Thieves over 2 days on 15th and 16th February.
"We have recently had to look at measures across the board to continue moving forward with the event, whilst still maintaining the highest safety standards and ensuring the quality of the festival experience for patrons and artists aren't compromised", they said in a statement.More news: Man Utd Boss Reserve Special Praise For Pogba
This is despite Mountain Sounds actually having one of the better records for drug use, with only 49 people detected during 2018's event.
"The event organisers made a decision to cancel the festival based on financial reasons associated with the event".
Read the original story and full statement below. There were 49 drug detections a year ago, "that's 0.30%. It was strongly indicated to us that we were not going to be granted the necessary approvals required for the 2019 event to proceed next weekend".
However, they were "blindsided" when a week before, they were told to pay upfront approx. "NSW residents, please keep this at the forefront of your mind as the next election nears in 6 weeks' time".
Blasting the "out of touch" state government for "fear-mongering, bullying and oppressing the youth", they write.
"We are devastated to announce the cancellation of Mountain Sounds 2019".More news: Algonquin Power & Utilities (AQN) Attains New 1-Year Low at $20.56
NSW's live music scene is essentially under siege by Premier Gladys Berejiklian's local government following a string of festival fatalities. "Unfortunately, we too have been put in an impossible situation as it was unrealistic for us to pull this money together, particularly given the time frame".
The Psyfari festival also took aim at the state government on Wednesday when they announced they were cancelling their event.
"We are unfortunate to be in the wrong place at the wrong time when festivals are the new scapegoat of a failed government and their failed war on drugs".
"The information initially provided to police did not accurately reflect the number of expected attendees and revealed numerous breaches", a NSW Police spokeswoman said.
It's common for events to shoulder costs for a police presence, but the specific number is issued by the Department of Liquor and Gaming, on advice from the NSW Police.More news: Trump to create American AI Initiative with executive order