In an announcement expected ''within weeks'', the NSW government will argue that restrictions it has placed on the South Tralee development mean it will not impede Canberra Airport's expansion plans.

Village Building's chief executive, Bob Winnel, said yesterday that he was unaware of any pending approval, which, if given, would see 1000 homes south of Queanbeyan developed over five to six years in a $400 million venture.

Mr Winnel said had not heard anything since September, when NSW Planning told him that it would be abiding by existing rules governing aircraft noise standards, not new rules proposed by federal authorities.''We are waiting with bated breath, but I don't know, they are tight-lipped.''

He would not speculate on Canberra Airport mounting a fresh legal challenge, after fighting the development for more than a decade, other than to say all avenues had been exhausted.

If Tralee is approved, Mr Winnel expects bulldozers would be on site about a year later.

''If approved, we need to know what's approved. We just don't know, we are in the dark after 10½ years.''

But Canberra Airport's managing director, Stephen Byron, said: ''The reality is the whole of this development is covered by aircraft noise and it will severely compromise Canberra Airport's ability to serve as an overflow for Sydney … and Barry O'Farrell's only option for a second Sydney airport is about to be lost forever.

''I am flabbergasted by such an appalling policy decision.''

NSW Planning Minister Brad Hazzard would not comment on whether a final decision had been made, but said the government was ''extremely aware of the need for more housing in and around Queanbeyan and also of the need not to limit the expansion of Canberra airport.''

''It has been put to us that we can balance both those objectives.''

Village Building Company sought the rezoning of a rural corridor near the airport and south of Queanbeyan to build between 800 and 1200 homes.

Canberra Airport has been fighting the development plan for 11 years.

Mr O'Farrell has angered some of his federal colleagues by refusing to back any of the options for a second airport in the Sydney basin, despite a joint federal and state report warning that failure to begin immediate planning for an airport would have serious economic, congestion and noise consequences for NSW and the rest of the nation.

The report recommended a second airport be built at Badgerys Creek, on land secured by the Hawke government - but this is not supported by either major political party - or Wilton, south-west of Campbelltown, which is being investigated by the Gillard government.

Mr O'Farrell has said the only option he would support is Canberra, linked to Sydney by a very fast train.