It takes the asking price of the site on Wattle Street to $74 million: a sum the government said it was prepared to pay only weeks ago, shortly before it walked out on negotiations citing frustration with the city's "unreasonable" demands.

The collapse seemingly ended a year of negotiation and hopes that a 1000-student primary school could be built by 2017 for the city's rapidly growing school-age population.

In an attempt to restart discussion, Sydney Lord Mayor Clover Moore initially offered a reduction in asking price of $4.5 million on Monday.

But the Education Minister Adrian Piccoli rejected that proposal out of hand as too expensive and hinted that the end of negotiation was final: "I can confirm the department will not be purchasing the [site]," he said in a letter to the Lord Mayor seen by Fairfax Media.

On Monday night, at the council meeting, the discount was raised to $8.5 million at the suggestion of one of the Lord Mayor's main political antagonists, Liberal councillor Edward Mandla.

"I urge the council to do the honourable thing [and] accept the good offer from the state government," he said.

Lord Mayor Clover Moore immediately suspended the meeting. She later adopted the suggestion from the Liberal councillor which she interpreted as a signal the Liberal state government was prepared to resume negotiations.

"The Minister for Education must instruct his department to immediately resume negotiations," Cr Moore said.

Cr Mandla said he was confident the education minister would look again at the deal "now that common sense is prevailing on our side".

Other councillors questioned why the council simply did not lower its price in the first place and said this was an exercise in shifting blame.

"It becomes an opportunity for you to accuse the state government [if negotiations fail]," said Liberal councillor Christine Forster. "That's what this is about."

But state Sydney MP Alex Greenwich, a close ally of Clover Moore, said the onus was now squarely on the state government to pay for the site.

"I hope minister Piccoli works with the council and the community to deliver this much needed and promised new primary school," Mr Greenwich said.

The cost of cleaning up the chemically-contaminated site has been the main sticking point in negotiations. The department's $74 million offer took into account between $18 and $25 million for cleaning up the site.

The department's initial offer for the facility was $27 million. Insiders in the education minister's office have said it felt council was not acknowledging the public service it would be providing the city by running a school.

The education minister's office has been contacted for comment.