We report a numerical study on the vaneless diffuser core flow instability in centrifugal compressors. The analysis is performed for the purpose of better understanding of the rotating stall flow mechanism in radial vaneless diffusers. Since the analysis is restricted to the two-dimensional core flow, the effect of the wall boundary layers is neglected. A commercial code with the standard incompressible viscous flow solver is applied to model the vaneless diffuser core flow in the plane parallel to the diffuser walls. At the diffuser inlet, rotating jet-wake velocity pattern is prescribed and at the diffuser outlet constant static pressure is assumed. Under these circumstances, two-dimensional rotating flow instability similar to rotating stall is found to exist. Performed parameter analysis reveals that this instability is strongly influenced by the diffuser geometry and the inlet and outlet flow conditions.