Judge Philippa Cunningham said it would be an "unenviable task'' for the police to identify who was genuinely residing at the square and who was protesting there peacefully and not breaching any council by-laws .
The council had not identified any individuals who were defying the court and Judge Cunningham said she would want to hear further argument about the legality of sending unnamed people to prison before making an order.
"I would question whether or not there might be less draconian enforcement procedures in place,'' she said.
There would also be no judges sitting in the District Court until January 4 so it would be impossible for those arrested to apply for bail until then.
Furthermore, she said the number of tents on the square now was only about 5 per cent what it was previously.
"The case law makes it clear that imprisonment as a means of enforcing an injunction is a last resort,'' Judge Cunningham said.
However the court "cannot and will not'' tolerate continued defiance and imprisonment could eventually result if they did not comply.
A further hearing date was set for mid-January.