Cowell apparently claimed that the choice of clothing for the band's 50 dancers was "insensitive and inappropriate" following the recent high-profile clashes between demonstrators and police over the controversial rise in student tuition fees.
According to The Sun, Take That were due to sing new single 'Kidz' on last night's X Factor finale before Cowell discovered the details of their performance and intervened.
"When Simon found out about the riot cop gear he was upset," a show insider said. "For him, X Factor is an entertainment show pure and simple. It's about people having a good time. It's not about politics.
"He thought it wasn't on having dancers dressed as riot police. He told Take That it was insensitive and inappropriate and asked them to change things."
The band eventually decided to sing their recent track 'The Flood', which they had already performed on this series of the ITV1 talent show.
The source added: "It was touch and go for a minute as they were threatening to walk out but Simon stood firm. He'd rather have filled the three minutes with something else.
"Take That might be a huge band, but when it comes to The X Factor, Simon calls the shots."
Last night's X Factor saw 27-year-old Matt Cardle beat Rebecca Ferguson and One Direction to this year's title.