The state government has signalled plans to compulsorily acquire the site of the old Balmain Leagues Club in inner Sydney as an entrance way for a tunnel needed to remove thousands of tonnes of spoil each day during construction of the proposed Western Harbour Tunnel.

A compulsory purchase of the notorious eyesore on one of Sydney's busiest roads will shelve new plans for the Balmain Tigers to return to their traditional home, and expose the state to a hefty payment for a property slated for a $160 million redevelopment.

The old Balmain Leagues Club at Rozelle has been earmarked as an extraction point for spoil from the proposed Western Harbour Tunnel. Credit:Nick Moir

Roads and Maritime Services notified the Inner West Council that it is likely that the Rozelle property, which is about to be taken over by a new owner, will be acquired for a "dive site" for the planned toll road tunnel under the harbour between Rozelle and the north shore.

Inner West Council's Labor mayor, Darcy Byrne, said a compulsory acquisition would have "disastrous consequences" for the Balmain Tigers, the Rozelle community and taxpayers.