More than 80 people attended Save Newcastle Wildlife's protest at the Havannah Nature Reserve in Hazlerigg to oppose the Banks Group's plans for a new estate across the road.
Campaigners said the homes would mean more pets attacking the squirrels.
Banks' surveyors suggested several schemes to minimise any impact.
A spokesman for Save Newcastle Wildlife said: "Such a high density development is likely to attract grey squirrels to the area, as many people feed grey squirrels in their gardens, threatening the existing red population and increasing the likelihood of predation from domestic pets.
"If approved, this development will see a steep incline in disturbance from human activity within the nature reserve."
Amec Foster Wheeler carried out a survey of the squirrels for Banks.
Their report concluded that the squirrels already suffer some disturbance from visitors to the nature reserve and, while acknowledging nearby homes could mean more people going to the site, extra disturbance could be mitigated by footpaths keeping people away from the squirrels' habitats.
The report also said there would be no "direct impact" on the squirrels but there could be "indirect effects" such as the squirrels going to the houses for food.
The surveyors suggested planting hedgerows suitable for red squirrels to forage in closer to the reserve to negate the need for them to hunt further afield for food.
About 290 people have written to the council to object to the plan while 29 have written in support.
More than 6,500 people have signed an online petition opposing the development.
The plans are being considered by Newcastle City Council but no date has been given for a decision.

Pompey are third with 10 games to play, and have a four-point lead over fourth-placed Stevenage.
"When you are where we are, you hold all the cards," Cook told BBC Radio Solent. "But, it's a very difficult league, it's unforgiving."
Portsmouth host play-off chasing Grimsby at Fratton Park on Tuesday.
Back-to-back wins over Crawley Town and Colchester United, coupled with a slump in form by Carlisle United, have put Portsmouth back in the driving seat for a top-three finish.
"The reality is I don't think third this season will be as high a points tally that's it's been in recent years," Cook said.
"Teams have come from nowhere to be in the running this season and there's plenty of them knocking on the door of the play-offs who want to get in there.
"Every fixture from now until the end of the season is littered with games from something on them. Every team will have an agenda to try and get as many points as they can."
Wildlife campaigners are opposing plans for 460 new homes near Newcastle amid fears they could harm neighbouring red squirrels.
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Portsmouth manager Paul Cook believes a lower than average number of points will seal the third automatic promotion place in League Two this season.