The meeting comes a year to the day after Madrid held snap elections in Catalonia after blocking the wealthy northeastern region's move for independence and many separatists have called the timing of the meeting “a provocation”.
In protest, the powerful grassroots separatist organisation ANC, which has previously staged massive pro-independence street demonstrations in Barcelona, urged its supporters to block the streets of the Catalan capital with their vehicles.
Radical grassroots group, the Committees for the Defence of the Republic (CDRs), also plans to meet near the palace where the cabinet meeting will be held. Its members have clashed with police in the past.
“We will be ungovernable on December 21,” the group said in a tweet, accompanied by a picture of Spain's King Felipe VI on fire.
Pro-independence groups are also planning to march through the streets of Barcelona on Friday afternoon after the meeting which will get under way at 10 am (0900 GMT).
Tight security is expected to cordon off the palace where the Spanish government will gather.
'Not a provocation'
Separatists are still reeling from the steps Spain's central government took to block Catalonia's independence bid.
In October 2017, Catalan leaders pushed ahead with a controversial independence referendum despite a court ban, then declared independence on the basis of the results.
The then conservative Spanish government responded by deposing the Catalan executive, dissolving the regional parliament and calling snap elections for December 21st.
Separatist parties again won a majority in the Catalan parliament in the election, even though many candidates were in jail or self-imposed exiled over their role in the failed independence bid.
Spain's Supreme Court last October ordered 18 former Catalan separatist leaders to stand trial over the independence bid.
Nine defendants are being held in jail ahead of their trial, which is expected to start in early 2019.
Deputy Prime Minister Carmen Calvo said Wednesday that the Barcelona cabinet meeting “was not a provocation”.
Sanchez's six-month-old Socialist government already held a cabinet meeting in the southern city of Seville in October.
The prime minister will meet with the head of the Catalan regional government, Quim Torra, on Thursday on the eve of the cabinet meeting.
Sanchez took office in June after winning a surprise vote of no-confidence in parliament against the previous conservative government which was backed by Catalan separatist parties.
The separatists withdrew their support for his government after public prosecutors in November called for prison sentences of up to 25 years for the 18 Catalan separatist leaders facing trial next year.
Sanchez initially adopted a more conciliatory tone towards Catalonia than his predecessor, prompting accusations from the right that he was weak in the face of separatists who threaten to break up Spain.
But his tone has hardened after far-right party Vox, which takes a tough line against Catalan separatism, won seats for the first time in a regional parliament during an early election on December 2 in Andalusia, a Socialist stronghold.
During a debate in parliament earlier this month Sanchez said Catalan separatists “only have lies to back their political positions”.
Catalan vice president Pere Aragones said the first months of Sanchez's government were “a breath of fresh air”.
“But fresh air is not enough, there have to be concrete measures. The longer it takes for the State to recognise that there is a political problem here that needs to be resolved with courage, the harder it will be to find a solution,” he told AFP.
By AFP's Daniel Bosque