The officers reportedly told the venue they had received the green light from Office of Liquor and Gaming bureaucrats to allow the Danish royal entourage to bypass the ID laws.
Jade Buddha co-owner Phil Hogan, who intervened in an attempt to sort out the mess, said foreign dignitaries should be excluded from the ID legislation.
"It's a stupid law. We always thought it was going to be a nightmare," Mr Hogan said.
"It's happening all the time and the whole thing has been a nightmare from a tourist point of view. It's just a nonsense. It's a real over-reaction.
"This is just the tip of the iceberg with the Prince. It's happening all the time with normal people."
The ID scanning regime, which came into effect on July 1, requires anyone entering a venue in a Safe Night Precincts after 10pm to have their ID, such as a driver's licence or passport, scanned.
Prince Frederik famously met his future wife, a commoner from Tasmania then known as Mary Donaldson, in a Sydney pub during the 2000 Olympics.
The cringe-inducing incident involving the Crown Prince is the latest blunder for the draconian lockout laws, which are regularly catching out backpackers, foreign tourists and business travellers.
A dozen respected French winemakers without the necessary ID were turned away in July from The Gresham, which has won awards as one of Australia's best bars.
Gresham manager Ryan Lane at the time described the laws as "embarrassing".
The industry has been up in arms since the ID scanners were introduced, saying they were catching out tourists and long line ups were turning patrons away. The machines cost $8000 each.
The machines cost $8000 each and 31 licensees inside Safe Night Precincts had applied to reduce their hours from 2am or 3am to midnight to avoid using the scanners.
A Cairns nightclub owner said he was left out of pocket last month after international passports failed to fit the ID scanners and he was forced to turn away dozens of visiting US sailors.
Attorney-General Yvette D'Ath earlier this month said the Government understood there would be "teething problems" and would consult with licensed venues to review the rollout.