This error gave me a headache and I was really happy to find a solution for it.
When I tried to save a post on a blog which has more than 1000 posts, it could not be saved and saw this text on top of the screen: Updating failed. Sorry, you are not allowed to assign the provided terms.
This was happening only when I was adding a certain category to the post.
I started to investigate the issue and I had to use phpMyAdmin to check the database.
The posts category which, when selected, triggered the error was "Wildlife". There was also a tag called "Wildlife".
I have checked and noticed that category ID was 89.
When I checked the "Wildlife" tag ID, this one was also 89. Really weird!. These terms should have had different ID's.
In "wp_terms" table there was only just on ID with value 89.
But when I checked "wp_term_taxonomy" table I have seen the issue: both the category and the tag had the same ID.
After I have identified the cause of this problem, the solution was simple: I have deleted the "Wildlife" tag.
Then I was able to add "Wildlife" category to posts and the error disappeared.
I have no idea why the category and the tag had the same ID. But, as a general rule, when you have such an issue on your WP website, just check the ID of the category which triggers the error and then check if there is other term (like a tag for example) which has the same ID.
I hope that this article will save many people from possible headaches which could be caused by this error: Updating failed. Sorry, you are not allowed to assign the provided terms.