Police finalise plans to use force if necessary as chaplain becomes second cathedral cleric to resign

Lawyers will serve notice on activists camped out around St Paul's Cathedral as early as Monday, as police also finalise plans to forcibly remove them if senior officers are convinced they are causing disruption.

Occupy the London Stock Exchange, comprising more than 240 tents, has spent two weeks outside the historic building and those taking part have given no indication of leaving in the foreseeable future. Their defiance led the City of London Corporation and St Paul's to confirm they are seeking injunctions to break up the protest.

St Paul's said activists had ignored repeated requests to leave. "Legal action has regrettably become necessary. The chapter only takes this step with the greatest reluctance and remains committed to a peaceful solution."

The Corporation said in its statement: "We have no problem with a peaceable 24-hour protest by people without tents – provided the highway is fully usable – but campsites and important highways don't mix." The Corporation estimates that its legal costs could be £75,000, plus possible enforcement costs.

The announcements came immediately before the cathedral reopened after activists allayed health and safety fears by rearranging some tents. A lunchtime Eucharist, featuring St Paul's recently resigned canon chancellor Giles Fraser, celebrated the occasion and attracted hundreds of worshippers. The stand-off between the cathedral and the camp meanwhile also claimed another victim. The Rev Fraser Dyer, who works as a chaplain at St Paul's, stepped down because he was was "left feeling embarrassed" by the decision of the dean and the Chapter.

"I do not relish the prospect of having to defend the cathedral's position in the face of the inevitable questions that visitors to St Paul's will pose in the coming weeks and months, particularly if we are to see protesters forcibly removed by police at the dean and chapter's behest."

Protesters also expressed disappointment at the cathedral's desire to go to court. One, 40-year-old Tanya Paton, said: "I'm a member of the Church of England and I am utterly shocked by the decision. It's very unChristian. At no point have they tried to have open dialogue about why we're here. It has always been about the structure of the building." The movement has instructed lawyers, who are working on a pro-bono basis. "We know it's going to be a long, protracted process," she added.

The decision alarmed some of those who attended a special meeting of the corporation's planning and transport committee, which voted overwhelmingly in favour of legal action.

The closed session discussed the findings of an internal report, which weighed up the right to protest against the obstruction of a public highway.

The report, obtained by the Guardian, said the courts would "focus sharply and critically on the reasons put forward for the curtailing of a protest." One councillor, Brian Mooney, said he had argued that the corporation should work with the protest and warned that the situation could turn into a "Dale Farm-like eviction".

He said: "It was a very reasoned debate, I don't think you could accuse anyone except perhaps a couple of members who were cutlass swinging. I argued strongly that we should do nothing and in a sense work with the protest, find a way of reducing the encampment... in the fullness of time it would probably go away.

"But by raising the stakes and going down the legal route... it would escalate it. This could run and run. There is now a serious danger it will go all the way through and end up with a Dale Farm-like eviction. It's a long way down the line but... at some stage bailiffs are brought in and police are rigged up in gear and then there is an upleasant eviction on the steps of St Pauls and the heart of the City."

With legal action imminent, commanders from the Metropolitan Police and the City of London force are coordinating the operation to clear the encampment. It will be put into action if senior officers are convinced - following discussions with local firms and the public - that serious disruption is being caused.

The Corporation report said businesses within Paternoster Square, which remains partially cordoned off, are experiencing heavy losses of up to 90% from their customer base. The stand-off with the demonstrators presents the new Met Police commissioner Bernard Hogan-Howe with one of his first tests.

While Hogan-Howe has spoken publicly of the options being considered by the police, the City of London force refused all requests for interviews this week with commanders running the operation.

In Perth, Australia, David Cameron urged cathedral authorities to reach an agreement with the protesters.

The prime minister said: "I'm all in favour of the freedom to demonstrate, but I don't quite see how the freedom to demonstrate has to include the freedom to pitch a tent almost anywhere you want to in London. These tents, whether they are in Parliament Square or St Paul's, I don't think it is the right way forward."

On Saturday protesters are holding a "Sermon on the Steps" and have extended an invitation to the cathedral dean, the Right Graeme Knowles, and the bishop of London, the Right Rev Richard Chartres. The two churchmen have said they will be outside St Paul's to engage with activists on Sunday.

Occupy London has complained to the Press Complaints Commission about claims in four national newspapers showed 90% of the encampment was unoccupied overnight. The story, originally in the Daily Telegraph last Tuesday, purported to show, using thermal imaging equipment, that the camp was left empty.

It prompted City of London councillors to label it a "phantom protest".

Activists used the same thermal camera to repeat the experiment as a way of challenging the claims.