While the far-right party has previously been a member of the country's government several times, it is the first time that it is leading coalition talks.
The FPOe topped the September national election for the first time ever, winning almost 29 percent of the vote, but initially all other parties refused to enter into a cabinet with it.
But after talks between other parties collapsed, the FPOe was tasked earlier this week with trying to form a government with the conservative People's Party (OeVP), which in a U-turn said it was open to the idea.
- 'Crazy autocrats' -
Demonstrators gathered in Austria's capital Vienna late on Thursday to urge the conservatives not to join a government with the FPOe, holding up signs reading "Fight fascism" and "Nazis out".
Some also formed a human chain around the chancellery, with organisers estimating the crowd at 50,000 people.
"I am afraid for our country and for Europe and actually for the whole world, because crazy autocrats are coming to power, who are elected by the people," Elisabeth Helminger, 59, told AFP.
"I am really worried that people who do not follow the FPOe's mainstream, like people of colour, that they will simply be thrown out of Austria," said Helminger, adding that she was anxious about her care allowance being cut.
"If we just let certain parties govern our country without curtailing them, things will look bad for Austria," said Sarah Benedicter, 19, adding that it was "important to express one's political opinion publicly".
- 'Threat to human rights' -
Similar rallies took place in Innsbruck, Salzburg and Graz, where turnout was estimated at hundreds of people.
The rallies were called by more than 30 organisations including anti-racism group SOS Mitmensch and Volkshilfe non-governmental organisation as well as the Greenpeace environmental group.
"I fear that things are heading in the direction of Hungary, where there is no more freedom of the press and voters are practically being manipulated," Peter Mayer, 51, told AFP.
"A far-right chancellor would be a threat to human rights, democracy, a free judiciary, women's rights, human dignity of people living here -- regardless of origin, skin colour or religion. And we want to avert this threat," Alexander Pollack, spokesman for SOS Mitmensch told AFP.
Austria has had a strong far-right political presence since the 1980s.
In 2000, the FPOe under Joerg Haider entered into a coalition government, a first in the European Union, triggering protests that drew up to 250,000 people.
The FPOe has never governed the EU country of nine million at a national level, but it leads one regional government in Austria and is part of regional governments in four other provinces.
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