We can't tell you which option to take, because that isn't what we do here. The interpersonal solution to your problem is to talk to your parents about it in a way that will bring you as close to your goal as possible - that is to state your preference to your parents in a way that will avoid dispute and hopefully still receive their blessing and support.
It seems that your parents are still, to a degree at least, treating you like a child. This isn't an unusual problem by any means, so don't think bad of them. Fact is, you are engaged to be married. You are about to become a family of your own, just as your parents once did. The trick is convincing them of that.
One hindrance to that is your financial dependence on them. While you need their financial support, they are more likely to feel like they are still parenting you.
Whatever you do, don't go with your option 2 of blaming the move on your fiance. That might have long-lasting repercussions both on their relationship with your wife-to-be and between you and your wife-to-be!
Your best option would be to try and show your parents that City B is the best choice and hope for their support; but if they absolutely will not help then resolve to do that anyway without their support - perhaps taking more time to see if your fiance can get a job there, rather than your suggested option of seeking sub-standard accommodation.
In everything you say and do, show your parents that you and your fiance are a family unit now, and that you make decisions together. For example, you could perhaps say:
[Fiance] and I have discussed where we need to live. Neither of us want a long commute, and so we have decided to live in [City B]. She will look for work there.
If they object, don't get angry or cause divisions. What you say and do should maintain peace, because you have to think about the relationship you are all going to have for years to come. You might say:
I'm sorry that you feel that way. We will always take your feelings into consideration, but we are getting married and starting a life together now, and so we have to do what is best for us.
If they talk about withdrawing their financial support, your goal here should not be to heap guilt on them, or to use "emotional blackmail". Just be completely matter-of-fact and honest. You might say:
Well, that is what we have decided we must do, with or without your help. With your help we could set up in [City B] sooner, but if you don't want to help that is fine, it just sets us back a little.
All of these suggestions show:
- That you and your fiance are united in your decision
- That you do not "expect" their financial support but are grateful for it
- That their feelings are important to you, but secondary to the joint goals of you and your fiance.
By all means, adapt these suggestions to suit your circumstances, but avoid any insincerity - that is, do not say you are going to do anything that you are either not prepared to do or financially unable to.