A lawyer for a nationalist resident challenging the weekly marches into Belfast city centre also claimed it could get even worse in the months ahead.
Karen Quinlivan QC issued her warning as a hearing date for the case was moved forward to next month.
Judicial review proceedings have been brought against both the PSNI and Secretary of State.
A resident, who has been granted anonymity, claims that an unauthorised parade is being allowed every Saturday from east Belfast to the city centre.
Violence has flared on a number of occasions as loyalists protesting at the decision to limit the flying of the Union flag at City hall pass the Short Strand enclave en route to their destination.
According to the case being made out in court, legislation which requires the Parades Commission to be notified about processions has been repeatedly violated.
A judge, who granted leave to seek a judicial review, had listed the challenge for a full hearing in April.
But as the new date was confirmed on Thursday, Ms Quinlivan stressed the urgency involved.
Matters have deteriorated in the sense that there is quite clearly an impasse in which (police) call for judicial clarity in relation to this issue.
Karen Quinlivan QC
She added: "The Chief Constable has one view about the legal situation and the Parades Commission has another."
Earlier this week, the Commission said it has no role to play in the vast majority of the protests.
The position was set out after Chief Constable Matt Baggott suggested the laws surrounding un-notified parades may need to be reviewed.
Ms Quinlivan also pointed to speculation that the Orange Order may decide not to give notification to the parading authority.
With the marching season now underway, she told the court: "This matter could not just deteriorate, but degenerate in the coming months."
Mr Justice Treacy, who will decide the challenge, listed it for 15 March.
"This is an important case and I'm sure all the parties will be anxious to have it dealt with as quickly as possible."
Two former Sinn Féin Lord Mayors of Belfast, Alex Maskey and Niall Ó Donnghaile, were present for the review hearing.
Outside the court, Councillor Niall Ó Donnghaile claimed the PSNI was facilitating illegal marches.
"What we need is urgent clarity brought to this issue.
"Regardless of the conversations between the Chief Constable and the Parades Commission the Short Strand community is continuing to be shut down each Saturday to facilitate an illegal loyalist march past the area," he added.
Mr Maskey, an MLA for South Belfast, also alleged that police were failing in their duty to nationalist residents.
"Last Saturday the people of the Short Strand were locked down for a number of hours on the whim of 30 people (protesting)," he claimed.