The state government is pushing to allow larger buildings to overshadow a long-planned public square in the heart of the city.

A proposed $650 million redevelopment of Cockle Bay Wharf has triggered another dispute between Clover Moore’s City of Sydney Council and Gladys Berejiklian's government over development controls in the inner city.

The Department of Planning and Environment is supporting a proposal for a 183-metre tower to be built on the eastern edge of Darling Harbour. That support is against the strong resistance of the council, which is trying to prevent more overshadowing of a long-mooted public domain at Town Hall.

An artist's impression of the Cockle Bay redevelopment, which features a 183-metre office tower, retail precinct and park. Credit:GPT Wholesale Office Fund, AMP Capital Wholesale Office Fund, Brookfield

Town Hall Square does not yet exist. But the City of Sydney has been slowly acquiring a parcel of properties across George Street from the Sydney's Town Hall, which it is hoped will eventually constitute a rare open space in the city.