Five years after Sydney's popular rainbow crossing on glittering Oxford Street was removed in the middle of the night, it is coming back.

The Sydney City Council is returning the colour to the heart of gay Sydney by announcing a replacement rainbow crossing in the Taylor Square area.

Lord Mayor Clover Moore said the move was "incredibly significant" to the community.

"It was devastating when it was removed with no warning in the middle of the night," she said.

Sydney's rainbow crossing was covered in asphalt in the middle of the night.

"Not only will this crossing be a colourful celebration of our LGBTQI community, but it will also be a trial of new sensors to give pedestrians as much crossing time as possible."

The rainbow crossing became a global sensation in 2013, but at the end of a one-month trial, and following a bitter feud with the council, it was covered over by the State Government.

Its removal sparked public backlash and made international headlines.

Then-roads minister Duncan Gay ordered Roads and Maritime Services to remove it due to "safety concerns".

The new rainbow will be painted on the corner of Bourke and Campbell streets near Taylor Square, to coincide with the 40th anniversary of Mardi Gras.

It will be raised, and prioritise pedestrians over vehicle traffic.

The original rainbow crossing, where Oxford Street meets Flinders Street, was a huge hit. ( AAP: Tracey Nearmy )

The crossing will be trialled for six months before it can become a permanent feature of Taylor Square.

Ms Moore said she was confident the crossing will be safe.

"I would rather it just went in and was permanent, but we'll do that trial and I'm very confident it will pass with flying rainbow colours," Ms Moore said.

Construction is expected to begin in October and take around three months to complete.

Residents welcome plans

"I think it's a great idea, it's good representation of a part of history that's symbolic to Sydney up here, Taylor Square and in fact the whole of Surry Hills, is all part of it so bring it on and keep it permanent," Aaron Wigley said.

"It's time to leave it there," he said.

"If the rainbow belongs anywhere it's in Taylor Square," Sophie Cameron said.

Philip Mitchell said: "This is the gay area of Sydney, so best of luck as far as I'm concerned."

"Other areas of Sydney no doubt would probably be shocked by it, but for Surry Hills and this area of Sydney, no drama at all."