Mr Barr ruled out development in the area on Wednesday, before a speech where he also pledged a more confined city with less urban sprawl.

He said the forest would not be developed, despite evidence from senior public servants to the contrary.

Mr Barr said the city needed to be developed but in a way that had less physical impact on the environment, making higher density housing the preferred option.

In ruling out development in the forest, he also pledged not to allow it in Namadgi, Tidbinbilla and the lower Cotter catchment area.

Mr Barr said that if urban sprawl continued, it would lead to the loss of such areas and there was a need to protect them.

The change is the latest public signal his government is pursuing higher density housing in line with the new planning strategy released late last year.

"Most Canberrans don't know this, but even as we've been growing, our city still has one of the lowest population densities of any major city in Australia," he said.

"Continually building outwards may have been OK when the city's fringes only extended as far as Belconnen and Woden, but we can't go on like that forever."

Mr Barr said the new strategy meant 70 per cent of new housing would be in-fill in existing area, rather than greenfield areas like Ginninderra.

The chief minister also revealed a $5 million innovation grant over four years to be funded in this year's budget to help seed fund new business ventures.

That funding will be put towards building new local start up companies, in an effort Mr Barr said would help widen the ACT's economic base.

Mr Barr said the territory could get through the economic headwinds, if it built on it strengths such as higher education and tourism.