The block, on the corner of Sydney Avenue and National Circuit, is home to the golden sun moth and natural temperate grasslands of the south eastern highlands, both designated matters of national environmental significance.

A large sign at the site reads, "The National Capital Authority has taken specific action to protect and manage the site during development of the York Park area".

But now, the Department of Finance is seeking permission from the Department of Environment and Energy to clear and then sell the block, by proposing the environmental provisions "be deleted", according to a summary of a report on the National Capital Authority website.

The block is owned by the federal government, while an adjoining block also referred to in the report is unleased territory land. Both are under the control of the National Capital Authority.

The department of environment is considering the proposal under the Environmental Protection and Biodiversity Conservation Act 1999.

If the plan goes ahead, the loss of habitat is to be offset to a site in Hall. However, the proposal has advocacy groups up in arms.

A report by Purdon Planning says the proposed divestment will result in the loss of the golden sun moth habitat at the site, and a further loss of a habitat that occurs close by.

"It is considered likely that the proposed action will also impact these adjacent habitat areas. The proposed action will therefore result in the loss of 0.32 hectares of natural temperate grasslands and 0.72 hectares of golden sun moth habitat," the report reads.

Kingston Barton Residents Group member Nick Swain was one of only two people at the public meeting to discuss the plans.

"It's an absolutely unique inner city environment," he said.

"It's a unique reserve in the heart of the nation's capital, and because of that it's even more important than also being a reserve for the golden sun moth."

Friends of Grasslands president Geoff Robertson said money was spent annually on protecting and restoring grassland communities in other suburbs of Canberra. He said the group was very concerned about the future of the area, and was "highly suspicious" the department would allow the area's conservation value to be destroyed.

The site was particularly unique, the group said, as studies had shown a high-density population of the golden sun moth, compared with lower density populations in other parts of the ACT.

ACT environment, planning and sustainable development directorate deputy director-general Gary Rake said the federal government had approached the ACT government to negotiate the possible purchase of the territory government's adjoining block.

"Although the territory provided consent for the Department of Finance to undertake the EPBC referral on behalf of the territory, the ACT is yet to determine the future for its Barton site and no decisions about the site have been made," Mr Rake said.

"The outcome of the EPBC referral and future conservation actions will apply whether the site remains under Commonwealth or ACT land management."

An ACT Greens planning spokeswoman said just because the area was not well maintained shouldn't mean it wasn't worthy of ongoing environmental protection.

"A piecemeal approach to planning and development is of significant concern, particularly given these blocks sit in the heart of the parliamentary triangle," she said.

"As home to the golden sun moth, the federal government must also demonstrate how previous offsets are protecting these endangered species - and ensure that the status of this at-risk population is maintained, going forward."

A department of environment spokeswoman said a decision on environmental provisions for the blocks was expected imminently.