Palma town hall admits there has been a "certain laxity" in applying regulations.
Eight "illegal sellers" were arrested, having attacked tourists and stolen phones and valuables.
Aligi Molina, councillor for equality, accused retailers of being racist for their campaign against illegal sellers.
- Britons could be denied entry to the Balearics next year
- British residents taking drastic action over driving licences
- First day of Ryanair strike could affect 73,200 passengers on Friday
- Mallorca Live: Making some changes after first day problems
- Palma delays because of air-traffic control and Ryanair strikes