The council and company have until September to sort things out
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Aberdeen is facing a mounting rubbish crisis, according to confidential papers seen by BBC Scotland.
Councillors have been told that doing nothing is not an option and continuing with current arrangements could cost millions of pounds in fines.
Aberdeen City Council signed a 25-year contract with the waste management company Sita UK six years ago.
Councillors have now approved a report in private which said the current waste disposal contract is not sustainable.
An incinerator on a site on the outskirts of the city was number one on the wish list but that has not happened.
The report said that unless a solution is found soon the council should terminate the contract and plan for an alternative waste disposal infrastructure.
It is believed that failing to meet European landfill targets could cost Aberdeen at least £9m in penalties by 2020, which councillors have been warned is neither sustainable nor affordable.
Sita and the council have until September next year to work out a solution.