The Land Development Agency confirmed it would reduce the number of dwellings planned for the site from 1800 to a maximum of just 380 and has shrunk the size of area of the redevelopment from 49 hectares to 16 hectares.

The government also backed down on building heights now curbed at a three-storey limit rather than the eight-storey heights previously proposed.

The National Capital Authority refused to support the development unless the ACT addressed concerns about access to Government House, local traffic implications, the impact on historic trees and plans for six-storey buildings near Dunrossil Drive.

NCA chief executive Malcolm Snow said while it was hard to determine whether all the issues raised had been addressed until he had seen the detailed plans, the reconsideration was a positive step.

"I commend the ACT government for having the courage to listen," he said.

"It's a mark of the government's capacity to recognise, where there are community concerns, they are stepping back, reconsidering and putting forward an alternative proposal."

The ACT government will no longer develop land near the entrance to Government House but confirmed it would retain its commitment to deliver the $10 million Quarry Park and investment in restoration of the brickworks site.

However, the $50 million Mint Interchange has been removed from the project after the ACT government committed to fund and construct it following the previous plan's revision in February.

Mr Snow said it was clear the government had "de-coupled" plans for the interchange and the brickworks redevelopment, but while the scope of works was greatly reduced, the need for the infrastructure improvement wouldn't go away.

"With the growth of Canberra, and particularly the Molonglo area, the impact upon traffic growth will be something the ACT government will have to address in the longer term," he said.

Despite contesting much of the government's previous plans Mr Snow said reactivating the site for use was a priority so long as designs were "sensitive" to the scale and setting of the area.

"No one wants to see the original brickworks remain as it were without life for another 30 years," he said.

"We want to see what is an incredibly important precinct for Canberra being brought into use again and given new life. Done well, with good design, it would be a terrific asset for Yarralumla but also for the wider city."

Yarralumla Residents Association vice-president David Harvey said "after a series of unacceptable proposals" he was cautiously optimistic about the announcement and was looking forward to seeing it in detail.

"The reduction in the maximum height of dwellings from eight storeys to three storeys is in line with community requests and no longer contravenes the government's own planning rules," he said.

"Big winners from the government's announcement of a smaller scale development appear to be the Golden Sun Moth, the native grasslands and the Governor General, all now lying outside the designated boundary."