No consensus exists between the region's Aboriginal groups about whether the Aboriginal Tent Embassy should be allowed to remain at McCauleys Beach at Thirroul.
Monday night's meeting of Wollongong City Council resolved to send a revised plan of management for the site out to public consultation again.
But Councillor Janice Kershaw failed in her attempt to amend the plan so residential structures were not allowed.
The area is a designated Aboriginal Place because of its traditional role as a ceremonial and burial site, and meeting place.
The Illawarra Local Aboriginal Land Council (ILALC) said in its submission on the plan that the embassy should not be removed, with support given from the council to improve it.
"WCC should provide its support and consent as required to assist any improvements made to the embassy facilities, as may be suggested by the embassy to improve and enhance its important role in the community as an Aboriginal cultural heritage and teaching place," it said.
But the submission from the Korewal Elouera Jerrungarugh Tribal Elders Corporation (KEJ) says it should be removed, as it was not appropriate for people to be living at a burial site.
"Why not keep Sandon Point in all its sacredness and the environment for everyone to enjoy, by erecting a raised walkway with commemorative plaques at certain points?" it asked.
"The cultural significance of the site should be promoted on site. The history should be told by KEJ as the traditional custodians of the land."
The council has now resolved to work with the five Aboriginal groups linked with the site to try to resolve the management plan.
ILALC acting chief executive Sharralyn Robinson said the council was making a genuine attempt to respect the area's heritage.
"Hopefully as a community we will be able to come together and work through it," she said.
The Mercury understands Roy "Dootch" Kennedy is still living at the embassy, which has grown from a few tents 14 years ago to a series of permanent structures including a concrete teaching space, and a shack made of corrugated iron, wood and windows.
Kennedy has been charged with nine child sex offences relating to incidents that allegedly occurred between 1991 and 1999. He is yet to plead and his case has been adjourned until July.
The allegations against Kennedy have helped cloud the future of the embassy, which already faced uncertainty as the plan of management was developed.
Kennedy was forced to step down as ILALC chairman after being charged, and some Aboriginal people have called for him to move out of the embassy.
But bail conditions require him to live there.