Urgent talks have been underway since the invitation to police to march was withdrawn following the alleged murder of a Sydney gay couple by a serving officer.
NSW Police Commissioner Karen Webb met with organisers on Tuesday after the Mardi Gras board made its decision on Monday night.
NSW Police Minister Yasmin Catley said talks would resume on Wednesday.
"We had a very good conversation, there was a lot of goodwill around the table," she told ABC Radio.
"But ... there was no resolution at the end of that meeting."
Ms Webb said the discussions would continue in the lead-up to the parade which runs through Oxford Street in Darlinghurst in the city's east on Saturday.
Anthony Albanese and Chris Minns both back NSW Police being able to march in the parade. (Steven Saphore/AAP PHOTOS)
Police marching out of uniform is one solution being considered.
Debate over police participation in the Mardi Gras parade has intensified since the arrest of Senior Constable Beau Lamarre-Condon, 28, over the alleged murders of Jesse Baird, 26, and his boyfriend Luke Davies, 29.
"Our community needs space to grieve the loss of Jesse and Luke who, before this tragedy, would have been here celebrating with us at the festival," the Mardi Gras board said this week.
The killings allegedly occurred at Mr Baird's home in inner-city Paddington, not far from where Saturday's parade will take place.
The senior constable previously marched in the parade with the NSW Police contingent.
Meanwhile, Australian Federal Police officers have decided not to march, abandoning plans to join their NSW counterparts.
"This decision was not taken lightly, but we acknowledge how some in the community are feeling about the blue uniform," an AFP spokesperson said in a statement.
Pride in Protest spokeswoman Charlie Murphy described police marching at Mardi Gras as "salt on open wounds".
Labor government minister Penny Sharpe on Wednesday backed police marching, recalling her experiences volunteering at Mardi Gras more than three decades ago.
"I remember the time when the police didn't march, didn't want to march, and when they stepped up and said 'we want to be part of this'," she told ABC Radio.
"We never get a better outcome by excluding the people who are in the best place to change institutions."
Liberal upper-house MP Jacqui Munro raised concerns about taxpayer money going towards the event if police were excluded and said she hoped for a resolution that would allow them to march.
"Police should absolutely march and I think they should be allowed to march in uniform ... because it demonstrates that there is progress in these organisations," she said.
Prime Minister Anthony Albanese and Premier Chris Minns have both backed police marching in the parade, as has independent state MP Alex Greenwich, whose electorate includes the Oxford St precinct where the event will take place.
Both leaders are expected to join the parade on Saturday.
Mardi Gras organisers have been contacted for comment.
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