The prostitutes' rights group Hetaira said it would rally on Saturday against plans to fine prostitutes and those who pick them up on the street, fearing it will force them to work in dangerous conditions.
"It is directly affecting us already because the clients have got scared and aren't coming," said Nereyda Lakulok, a 54-year-old grandmother from Costa Rica who works as a prostitute in Madrid.
"We want our work to be regularized so that we have the same labour rights and the same treatment as any other worker," she told a news conference.
Madrid city hall has drawn up proposals to fine those who pick up prostitutes in the street, while the national government plans to fine those offering or soliciting sex near schools or other children's areas.
According to the government's draft unveiled in November, the national law would make offering or soliciting sex in prohibited areas punishable by a fine of between €1,000 and €30,000 ($40,000).
The new norms proposed in Madrid would fine a person caught soliciting sex in public up to €750, or up to €3,000 if it is done near schools or shopping centres.
"The law turns us into delinquents, it does not help us at all," said another prostitute in the rights group, Carolina Hernandez, from Ecuador.
"They want to get us out of sight, clear us out of the street and into the underworld," where women risk being exploited by gangs or sex clubs, she added.
Hetaira called a demonstration on Saturday afternoon at the foot of Calle Montera, a street next to Madrid's central Puerta del Sol square where prostitutes habitually stand waiting for clients.
Sex workers there will protest to demand that authorities allocate places where those who choose to work as prostitutes can do so in safety.
Prostitution is neither illegal nor regulated nationwide in Spain.
A parliamentary report in 2007 estimated there were 400,000 prostitutes working in the country — the latest such figures available.
Campaigners such as HazteOir, a conservative pressure group, say regulating sex work would not help those who are forced into prostitution.
Hetaira spokeswoman Cristina Garaizabal said women forced into sex work by human traffickers constituted a minority of prostitutes and that such abuses, though "very serious", should not be confused with "voluntary prostitution".
Lakulok added: "It was my decision to exercise this noble profession, which has allowed me to put food on the table every day".
"We are all proud to have supported our families, not with the sweat of our brow but with the sweat of our sex."