It has been home to Huguenot silk weavers, Jewish tailors and Bangladeshi shopkeepers, but today Spitalfields is known for its hipster vibe, chic market and stylish bars. Residents include artists Tracey Emin and Gilbert and George, and a delicatessen trades from the ground floor of a house owned by the novelist Jeanette Winterson.

But tensions have emerged over a proposal by some residents to establish a local town council within the borough of Tower Hamlets, which stretches for several miles across east London to the Newham border.

Supporters of the plan say it would increase accountability and allow issues of concern to local residents, such as litter and street lighting, to be addressed. Critics point to additional bureaucracy and the diversion of funds – and a risk of entrenching divisions between the affluent occupants of carefully restored 18th-century dwellings and the residents of run-down housing estates to the east and south, many of whom are of Bangladeshi heritage.

It is more than 100 years since Spitalfields last had its own governing authority, in the form of a civil parish set up in 1729. That was absorbed into the Metropolitan borough of Stepney in 1911, then merged into Tower Hamlets in 1965.

Facebook Twitter Pinterest The Chicksand estate in Tower Hamlets is outside the proposed council’s boundaries. Photograph: Antonio Olmos/The Observer

But residents are entitled to seek to establish a town council within a borough if they have sufficient local support. A petition gathered 324 signatures – hardly an avalanche but enough, they say, to trigger a borough council vote.

Spitalfields – named after a leprosy hospital opened in the Middle Ages – has seen huge commercial development as the City of London expanded eastwards. Developers are charged a community infrastructure levy to pay for local improvements, but people in Spitalfields – where most of the construction has taken place – have not reaped benefits, campaigners say.

A town council would receive a proportion – between 15% and 25% – of any levies paid by developers to spend on local amenities. It would also be able to charge a precept on top of council tax, which supporters say would typically be £1 a week for each household. The council would comprise 10 to 12 elected officials.

“The issues that bother people are quite minor – litter, benches, green spaces, street lighting – but they make a place more pleasant to live in,” said David Donoghue, the coordinator of the town council campaign, who has lived in Spitalfields for 20 years.

There were also concerns about antisocial behaviour, including noise, urinating in public and vomiting, he added. A town council would be better positioned to deal with such problems. “The borough council doesn’t really get to the nitty gritty. We would have more local engagement, reflecting the views of people in the area,” he said.

Krissie Nicolson, director of the East End Trades Guild, which represents independent businesses in the area, said: “Anything that strengthens local democracy is a great idea. A town council will give local businesses a chance to have a greater say. A lot of big businesses have muscled in over recent years, and this would create a more even playing field.”

Global chains had forced up rents for everyone in the area, she said. “We’ve lost a lot of East End heritage and culture as a result.”

But opponents of the scheme say its proposed boundaries exclude social housing estates to the east of Brick Lane, a neighbourhood called Banglatown. A public meeting last week organised by campaigners against the town council was angry and emotional, said Alex Rhys-Taylor, a local resident. “There’s a lack of understanding [among proponents of a town council] of the Bangladeshi community and its contribution to the area,” he said. “The boundaries they’ve drawn make it look like they’re trying to enshrine their privileged position.”

The Spitalfields Neighbourhood Planning Forum, which is in favour of a town council, has agreed to change the proposed name to “Spitalfields and Banglatown council” following objections, and is reviewing the boundaries to incorporate areas further to the east.

“It’s good that they’re listening to local objections, but the principle remains that they want to put up boundaries within the borough,” said Sue Rossiter, chair of Bethnal Green and Bow Labour party, which opposes the plan. “Spitalfields is a very well-off area, and only half a mile away there are neighbourhoods of intense deprivation and child poverty.”

Tower Hamlets council had a policy of spreading funds from the community infrastructure levy across the borough to ensure that those most in need benefited, she said. Ringfencing up to 25% of that money for Spitalfields would have an impact in poorer areas. “It should be about the many, not the few,” she said.

Nicolson acknowledged that the town council might be dominated by “white affluent property owners”. She said: “If it can be truly representative of all people in our richly diverse area, that’s a fantastic thing.”

A few minutes’ walk from Spitalfields market, whose stallholders offer artisan jewellery, vintage clothing and food from every corner of the world, lies the Chicksand estate, just beyond the proposed borders of the town council.

Most people there seemed unaware of the plan. But Firuz, who has lived in the area all his life, said he had no problem with gentrification. “We all benefit from that. I’m happy for people to come here and do up properties as long as they want to be part of the community. I’m against separating one area off,” he said.

The first phase of the consultation closes at the end of December, and a second stage will take place in the spring. A final decision will be taken by the borough council next year.