City councilmembers still want to evict everyone from Nickelsville, but the Housing and Human Services Committee voted to move forward on one or two city-owned sites that would be suitable for temporary encampments.
The vote isn't final and they still need to schedule a public hearing.
A day of protests ended with a die-in on the steps of Seattle's city hall as homeless people made a last stand to keep Nickelsville from being shut down.
Advocates also lobbied councilmembers to save the encampment in South Seattle, saying existing shelters can't handle the need.
"As a homeless person, I'm ashamed to tell another person I'm sorry you can't stay here, we're full," said Jarvis Capucion.
Efforts to close Nickelsville gained steam earlier this week when a majority of councilmembers and Mayor Mike McGinn agreed on a Sept. 1 eviction date.
"If they bulldoze Nickelsville, that's a hundred people who have a potential death sentence," said Tracy Arant.
About 100 people call Nickelsville home. Diane Fillmore camps there with her young son, and says the alternative housing city leaders want to push don't work for her family.
"Having the one older boy now, we don't fit into a lot of shelter situations," she said. "Actually, we fit into none of them with the cat."
Councilmember Nick Licata has suggested moving Nickelsville to another site run by a religious organization, and on Wednesday heard from one willing participant.
"We are one of the private property owners that would like to consider making our land available for tent city," said Sharon Lee with the Low Income Housing Institute.
Nickelsville sits on city owned property, and the city intends to sell the land to a nonprofit to build a warehouse. Homeless advocates say they just need the city to work with them and need more time to make a transition.
"We can get moved," said Trace de Garmo. "As soon as we locate those properties, we'll be moved in 30 to 60 days."
Councilmembers agreed to make a few changes to their ordinance, such as including more specific language about notifying neighbors, and establishing a limit on the number of homeless encampments in the city at any one time.