The Seattle City Council voted to limit 150 cars for each app-based company on the road at a time. UberX previously disclosed it had 900 operators.
If it's trimmed to 150, Uber says it will shut down its Seattle operations.
The council is also requiring drivers of paid car services to carry commercial insurance, a special license, as well as to undergo safety checks.
At the heart of the debate are politicians attempting to regulate fast-evolving companies such as Uber, Lyft and Sidecar, which use apps to connect passengers with rides from drivers using their personal cars instead of traditional taxis. With the touch of a few buttons, people can have a ride within minutes, a system many users say is more reliable than hailing a cab on the street or calling taxi company operators. Payment is done through the app.
But because these companies are so new, regulations haven't caught up with the business model. In Seattle, the startups are outright illegal because they are not licensed. Taxi companies see that as an unfair advantage.
It's a story that's repeating throughout the country as state lawmakers and city government officials consider how to regulate emerging Web-based businesses that provide a service similar to that offered by traditional cab and limo companies but under a distinctly different model.
After months of lobbying and rallies, the Seattle City Council settled on a proposal to cap the number of cars on the road from ridesharing companies. The proposal approved Monday caps 150 cars per "transportation network" company, meaning there would be about 450 such vehicles on Seattle roads at any given time. Under the proposal, the companies would be licensed and not the drivers, and insurance would be mandatory.
There are nearly 700 taxis that operate in Seattle and the surrounding county, according to city estimates. The City Council proposal would bump up the number of taxi licenses for the city by 200 over the next two years.