The long-running battle over development of the former Balmain Leagues Club is set to revert to square one after planning minister Pru Goward wrote to Leichhardt Council, encouraging it to redraw local planning controls for the site.

The most recent development proposal – for 247 apartments in two towers, at 24 and 20 storeys high, and parking for almost 500 cars – was rejected by the independent Planning Assessment Commission (PAC) in April.

The decision prompted Leichhardt mayor Darcy Byrne to call on the developer, Rozelle Village, to sell the site "to someone with a more realistic expectation of what can be built".

In May, Councillor Byrne wrote to Ms Goward, asking about the future of the site, given the government had deferred consideration of revised planning controls proposed by the council in 2013, pending the PAC's ruling.

The controls would have wound back the amount of development possible on the site to as little as a couple of storeys.

On Monday, Ms Goward responded to Cr Byrne, encouraging the council to "consider updating" its local planning controls for the site, which must be signed off by the NSW government.

"My department will be pleased to assist council in updating the controls, to provide certainty over the site's future and facilitate a level of redevelopment acceptable to council and the community," the minister wrote.

In her letter, Ms Goward notes that because the site was deferred from inclusion in the council's updated 2013 development rules for the local government area, the controls established in 2000 would apply until new rules were agreed on. The 2000 rules for the site allowed for three towers of eight, 10 and 12 storeys.

Ms Goward told Fairfax Media the government was "committed to giving the community and local councils a say in planning decisions for their area" and that it was "now up to Leichhardt Council to come up with a sensible zoning proposal for the future".

She noted the PAC had suggested the 2000 controls "are appropriate for the redevelopment of the site" and said, "but I look forward to council consulting with the community and making a sensible planning proposal to the government".

Cr Byrne said it was "a relief that the government has finally abandoned its hope of approving 20-storey towers through the Planning Assessment Commission”.

“A sensible, much smaller-scale development, which does not turn Rozelle into Bondi Junction, can be achieved on this site," he said.

Rozelle Village's rejected plan included space that would be leased back to a new Balmain Leagues Club. The club transferred ownership of the site to the developer in return for taking on a $23.5 million debt owed by the club.

However, in recent months Rozelle Village has been trying to put the club into receivership over debts to the developer of more than $11 million.

“We want to see the Balmain Leagues Club return to its home," Cr Byrne said. "The best chance of that occurring is for the current owner of the site to sell the property to someone with a less grandiose expectation of what can be built there."