Cultural Facilities Corporation chief executive Harriet Elvin said stripping out the tiered seating to make the existing theatre a flat-floor venue was being considered as the Barr government looked at options to build a new theatre.

$1.2 million was allocated in the June budget to develop a full business case for a new theatre with around 2000 seats.

Civic Library could be moved and the Mooseheads car park redeveloped, as part of the transformation of the precinct, tender documents released in April revealed.

Ms Elvin told annual reports hearings this week the existing 1200-seat theatre was more than 50 years old, and its size limited the productions that could come to Canberra.

"The existing Canberra Theatre, which was opened 1965 and of course it opened at a stage when a lot of the major performing arts centres were going in internationally like the Lincoln Centre, and it pre-dated virtually all of the other performing arts centres in Australia like the Sydney Opera House, the Adelaide Festival Centre, the Melbourne Arts Centre," Ms Elvin said.

"It was good to pre-date it but I guess it meant it started to age first so there are two main respects in which we’re seeking improvements."

Ms Elvin said the number of seats made it difficult to make productions financially feasible, given there were many fixed costs regardless of how many tickets were sold.

"The second main issue that we would like to tackle is the technical constraints of the venue. You’ll be familiar from attending performances here that … it’s got that slight letterbox look to it. In contemporary terms it’s considered a lot lower than other venues on the performing arts circuit so that tends to limit technically the productions we can fit into the venue," Ms Elvin said.

"There are other issues like the size of the stage, the size of the wings, the height of the fly tower, the backstage facilities and that means that either the productions have to be re-sized for the Canberra Theatre, which can be very expensive or productions can tour to Canberra alone and it’s really a combination of those two things - the auditorium size and the technical constraints of Canberra Theatre."

Ms Elvin said there was an argument the centre had a "viable ongoing life, potentially as a flat-floor venue for contemporary music, cabaret and comedy.

She said the theatre was in "constant demand", especially at this time of year.

"Dance schools for example are heading into a very busy time of year and it can be quite difficult to accommodate all of those uses so that could be a further continuing use for the existing facility," Ms Elvin said.

"We're currently looking at other models like the Enmore Theatre in Sydney, or the Forum Theatre in Melbourne to see if those offer viable models for how we might repurpose that venue."

A government spokeswoman refused to say what other options were being looked at as part of the redevelopment.

"Once the government has agreed on preferred options for the new and existing facilities, the business case will be commissioned to explore these options in detail," she said.

"This will take place over the 2018-19 and 2019-20 financial years and will include opportunities for community engagement."

Canberra's live music venues have been under increasing pressures in recent times, with the closure of Academy and near-closure of The Phoenix this year alone.

Music ACT director Daniel Ballantyne said while repurposing Canberra Theatre was a "fantastic proposal", there also needed to be regulatory changes akin to those in Brisbane's Fortitude Valley to allow live music to survive alongside residential development across the city more broadly.

Those changes in the 2000s placed a greater onus on new developments to incorporate noise attenuation and set noise limits specifically for music venues.

"Those core regulatory changes have allowed the Valley to remain the most active centre for live music in Australia," Mr Ballantyne said.

Mr Ballantyne said the "Enmore solution" would not produce an "Enmore situation" as that theatre had a particular history.

However he said the Canberra Theatre could become a "phenomenal" live music venue in its own right, with standing room of 1500-2000, so long as it sustained its marketing of the venue and engaging with promoters.

"There's a strong team at Canberra Theatre at the moment who really get it. It comes down to people, there's nothing inherent in the venue itself."

City Renewal Authority chief executive Malcolm Snow said he was also keen to avoid problems of St Kilda in Melbourne, which has seen live music venues disappear in recent years due to gentrification.

"What we don’t want to see is that we lose one of the things that contributes to activation," Mr Snow said.