Property developer Desane has succeeded in its legal battle to stop the NSW government from forcibly acquiring its land in Sydney's inner west for WestConnex, in a setback to the state's plans for the final stage of the $16.8 billion toll road project.

In a blow to the government's use of compulsory acquisition powers, the NSW Supreme Court has ruled that a proposed acquisition notice issued by Roads and Maritime Services for Desane's 5274-square-metre property on Lilyfield Road in Rozelle had no statutory effect.

Under plans for the final stage of WestConnex, Cabinet agreed in July 2016 to turn 10 hectares of land on the western half of the disused Rozelle Rail Yards into parkland. A month later, Desane was told that the government wanted to acquire its property, which abuts the old rail yards.

In his judgment, Justice David Hammerschlag said the road authority's intentions for the property were ill-defined and “may never be realised”.