Wollongong City Council says it will work with Smith Street swim school owner Sharon Crisafi to "see how the school could continue to operate".
On Tuesday, the Illawarra Mercury reported the Smith Street swim school, which has been open for 45 years without official council approval, was being forced to close following a single complaint from a resident about parking.
A council spokesman said while a swim school was not permitted on Smith Street, due to the area being zoned R1 General Residential, there were "planning mechanisms that can be explored in order for the business to continue".
Ms Crisafi said all conversations she has so far had with council officials had suggested it would be impossible for her to continue.
"As far as we've been told the door is definitely not open - there's no way we can get approval," she said.
"We had to speak to a town planner in Wollongong at the council itself and they've basically said no because we're in the wrong zoning."
The council spokesman said the case was a timely reminder for business owners to ensure they had the right approvals in place.
"To meet these basic requirements all business owners should be aware of their development approval and the conditions or requirements for their business," he said.
"They should also ensure they have the correct fire safety measures to meet their legal obligations within the Environmental Planning and Assessment Act, 1979 and Environmental Planning and Assessment Regulation, 2000."