Sydney's vaunted small bars won't be so small any more under a proposal for breathing life into night-time Sydney being actively considered by the state government.

The City of Sydney and others are pushing to double the occupancy of small bars to reach 120 in a submission to a state government review of small bar liquor laws.

The city also wants to lengthen the hours of operation for small bars to 2am from midnight currently.

The city argues the measures would lead to more bars offering live music and increase their contribution to Sydney's "night-time economy" which, on one measure, is worth $19 billion.