Wollongong City Council should not proceed with plans to buy the old Bellambi Point sewerage plant site, a report to Monday night's meeting recommends.
The area's declaration as a special Aboriginal Place and environmental restrictions would place too many constraints on the site, the report says.
Instead, the council should encourage owner Sydney Water to "discuss future ownership" of the site with the local Aboriginal community to ensure its cultural significance was maintained.
But the 8.7 hectare site may then be sold on the open market.
The report, from council property manager Peter Coyte, says 180 submissions were received during public consultation on the site, with the majority supporting the site being open space, with tables and shelters, paths and cycleways added. There were 11 submissions for a marina at the site.
Since 2009 negotiations have been held between the council and Sydney Water with a view to the council buying the site.
A line of credit in favour of Sydney Water was the proposed method of payment for the site.
Council officers have concluded the price, initially $3.36 million, was likely to have been affected by September's declaration of the site as an Aboriginal Place, which sets up additional obligations on how the land may be treated and the process for doing so.
Mr Coyte's report, to be considered at Monday's council meeting, says an Aboriginal Heritage Impact Permit would most likely be needed before any further works happened.
"Council has recognised the significance of the site to the Aboriginal community for some time, and supported the recognition of this significance through an Aboriginal Place declaration," it says.
"The legislative implications of the declaration will significantly complicate and potentially limit the options for future development, management and maintenance of the site."
Sydney Water has done significant remediation of the site, including clearing the car park and depot area, and cleaning out the old sludge ponds and covering them with fill to a minimum depth of half a metre.
The council report notes that if the land is sold on the open market, parts of it may be capable of development.
Illawarra Local Aboriginal Land Council CEO Sharralyn Robinson said she had lobbied for a multipurpose education and community centre to be built on the site, and would continue to push for this.
"I don't see why being declared an Aboriginal Place should make it any more difficult," she said yesterday.
Bellambi Point is highly valued by the Dharawal, Wodi Wodi and Allowrie peoples, and is home to one of the state's largest Aboriginal shell middens.
The site was once used as a bush school room, where elders taught children traditional stories and practices such as collecting and using bush foods and natural medicines.
A burial site was found in the area in 1965 and the remains and artefacts moved when the sewage treatment plant was established.