Deposits of the potentially deadly substance were found earlier this month on the artificial island, the site of several luxury lakeside apartment complexes worth hundreds of millions of dollars. It was the latest asbestos find in the Kingston area.

It sparked questions in the industry about how soil contaminated with asbestos decades ago came to be used in a project that began only in 2008.

But Land Development Agency chief executive David Dawes says that the island was built using material that was already in place, with the remainder consisting of fill brought in from other sites after being tested by environmental protection authorities and found safe for ''beneficial re-use''.

The government insists that there is no risk to workers or residents from the deposits on the island. ''The harbour civil works project comprised extensive cut-and-fill earthworks,'' Mr Dawes said. ''Kingston Island, which formed part of this work, is comprised of both fill material and in-situ material.

''Kingston Foreshore is a former industrial site. The industrial nature of the past activities on site contributed to contamination [there].''

WorkSafe inspectors were called to the island site in mid-November after workers became concerned about asbestos handling on the site, but the work safety inspectors found no safety breaches and allowed work to proceed.

Contaminated land is turning into a crisis in Canberra's urban expansion. The nearby mixed-use development at Eastlake now hangs in the balance as the government contemplates a clean-up bill of up to $100 million for 600,000 cubic metres of contaminated soil.

The ACT government looks set for a legal showdown with the Commonwealth over the cost of cleaning up hundreds of other contaminated sites around the territory, most of them dating back to the days before self-government.

But Mr Dawes has told Fairfax Media that his agency followed all the correct procedures when bringing in fill to construct the island.

''All material was tested and examined for its suitability for reuse as fill material by independent environmental consultants. The results from these tests were then assessed against the environmental and health criteria specified in the Environment Protection Authority's endorsed guidelines and the findings supported by the independent contaminated sites auditor for Kingston Foreshore prior to the material being used,'' Mr Dawes said.

''Extensive assessment and remediation has been undertaken and is continuing to be undertaken at Kingston Foreshore.''

The LDA chief said the material used to build the island had been tested and assessed before being put to ''sensitive'' land use.

''All of the former industrial land at Kingston Foreshore must go through this rigorous assessment, remediation and audit process prior to it being used for more sensitive purposes,'' Mr Dawes said.

''All sites at Kingston Foreshore, including the island, are managed in accordance with strict environmental controls and land released to date has been assessed by an independent contaminated sites auditor as 'fit for purpose' and these findings are endorsed by the EPA.''