Can I use "camping up" here?

You can say, "The police are setting up camp on the parking lot..." to indicate that they are currently setting up their trailers and other equipment. If you say, "They are camping in the parking lot..." then that means that they have already finished setting up and are just occupying the parking lot.

The phrasal verb to camp [something] up has a completely different meaning and refers to camp as an aesthetic style that is closely associated with gay culture. So if you say, "The police are camping up their trailers..." then the image it suggests is that they are decorating their trailers with glitter and sequins or something like that. You should avoid camp up as a phrase unless you're definitely talking about RuPaul's Drag Race or something like that.