Published March 8, 2016 - Deborah FitzGerald

"Balmain State Greens MP Jamie Parker, who has been campaigning to have the exchange demolished for many years, said the area was the most important heritage precinct in Balmain."

Leichhardt Council is set to purchase a 160sqm strip of land in Balmain for almost a million dollars despite fears it will be used as an outdoor smoking area for an adjacent pub.

After almost two decades of negotiations, council is finalising purchase of the land from Telstra which houses the Balmain Telephone Exchange.

It will involve the demolition of the building and the installation of a town square on the corner of Darling and Mullens streets - the design is yet to be decided.

The idea is to introduce a public park, while also revealing the heritage facade of the Balmain Post Office.

However, some councillors fear the small plot of land will become a giant ashtray for punters wanting to smoke outside the Town Hall Hotel, directly opposite.

Labor Councillor, Simon Emsley said it was not big enough to create a passive recreation space for residents to enjoy and the money could be better spent elsewhere.

"We desperately need more open space in Annandale. It's more likely to become a smoking room for the hotel adjacent," Cr Emsley said.

Balmain State Greens MP Jamie Parker, who has been campaigning to have the exchange demolished for many years, said the area was the most important heritage precinct in Balmain.

"Anyone who thinks it will be a giant ashtray has a lack of vision and a lack of commitment to making it a great public space for residents," he said.

Mayor Darcy Byrne said the design was crucial.

"It needs to be an excellent design to encourage people to come and use it, not just a paved slab of concrete," Cr Byrne said.

He said council would need to get it right to avoid wasting taxpayers money.

The sale price of $900,000 will give council an easement on the land with some restrictions on what can be built, particularly in relation to footings or excavation.

Telstra will retain ownership of cables which run underground.

Previously described by locals as a "carbuncle on the bottom of Balmain", some residents had been pushing for the removal of the telephone exchange, which was built in 1957.

After years of community campaigning, Telstra agreed to the demolition of the front portion of the telephone exchange building, provided Leichhardt Council paid for the work.

The front, lower section of the present telephone exchange was opened in 1957, and the rear, higher section built on the site of the 1914 exchange, opened in 1971.