The traders have been ordered to move to Katooma, but they argue that the new site is unsuitable because of its steep terrain, poor road access, insecurity and inadequate sanitation facilities.
For years, Rwentobo-Rwahi has served as a major onion collection centre, attracting farmers, buyers and traders from Ntungamo, Kabale, Kisoro, Rukiga and neighbouring districts.
The onions are supplied to markets across Uganda and exported to neighbouring countries, supporting the livelihoods of more than 1,000 people.
Every day, several trucks load onions from the market for distribution to different parts of the country.
"This town of Rwahi is entirely for onions," said trader Kalist Tayebwa.
Another trader, Michael Twongirwe, said he was unhappy with the relocation directive.
"I am not happy with this trade order," he said.
The traders contend that the decision was made without adequate consultation and insist that the proposed site will make business operations more difficult.
They say the hilly terrain would complicate the construction of storage facilities and hinder the movement of trucks transporting onions from farms.
"Where they are planning to take us is hilly and very steep; we cannot build stores there," Tayebwa said.
Barnabas Rutsigwahwo said the site's distance from the main road would further increase transport costs and logistical challenges.
"It is away from the road, very hilly, and vehicles carrying onions from gardens cannot easily reach there," he said.
Sunday Tushabe, the chairman of onion workers in Rwentobo, said the terrain would make it difficult to load trucks transporting produce to Kampala.
"The place to relocate to is too steep, and it is a big hindrance while stocking vehicles to Kampala," he said.
Despite the objections, some traders have begun relocating in phases in compliance with the directive.
Officials at Rwentobo-Rwahi Town Council acknowledge that the new site has challenges, including its hilly landscape and inadequate sanitation facilities, but say it is currently the only land available to accommodate the expanding onion trade.
They say roads and sanitation infrastructure will be improved gradually as the relocation progresses.
Authorities maintain that the relocation is intended to restore order in the market, stop the construction of unapproved storage facilities and support proper physical planning.
Nicholas Asimwe, the mayor of Rwentobo-Rwahi Town Council, said the available land is limited but necessary to accommodate the growing business.
"The nature of our land is a bit hilly, and that is the land we had at the moment. We have tried to put some roads there, but the magnitude of the business cannot actually fit on that land because onions need enough space. That is why we shall be shifting in phases," Asimwe said.
He identified the lack of electricity as the biggest challenge at the new market site.
"The biggest issue now is power because that place does not access electricity," he said, adding that authorities are working to extend electricity and improve other infrastructure at the site.