The ACT government is being "held to ransom" by the Commonwealth as it seeks to negotiate the land swap that would pave the way for a redevelopment of West Basin, Chief Minister Andrew Barr says.
But the National Capital Authority said it was Mr Barr who was holding up the process, as it argued it wouldn't be able to meet its international obligations if the territory didn't provide it with more land for diplomatic embassies.
The ACT government has a long-held vision to transform the waterfront, with the most recent plan earmarking at least 2000 apartments, an urban park and promenade for the precinct.
The government's 2019-20 budget includes $10 million for early work on the project, with a further $25 million allocated across the following two financial years.
But it first needs to secure the land from the Commonwealth.
Negotiations between the two parties, which have been ongoing for a number of years, centre on a deal which would grant the National Capital Authority land for an embassy in return for access to the lake bed.
Asked at a budget estimates hearing on Wednesday when the deal was likely to be finalised, Mr Barr said: "How long is a piece of string?"
"The National Capital Authority requires additional land for diplomatic missions, and we have been given a pretty strong signal that we are unlikely to get approval [to start work at West Basin] until we find them more land," Mr Barr said.
"We are being held to ransom on various things here."
After the hearing, Mr Barr told The Canberra Times that the Commonwealth had requested land for an embassy and residences in Canberra's inner south. Throughout discussions it had been "signalled that progress cannot be made [on the deal] until the Commonwealth's various needs are met", he said.
He refused to provide any details on the location of the inner-south site. The Canberra Times understands a key sticking point has the been the value of that site, compared with the value of the lake bed.
Curtin has been mentioned as the location of the possible embassy site, but that has yet to be confirmed.
The authority would not disclose which site, or sites, it had requested as part of the land swap.
A spokeswoman said that more than six months ago, Mr Barr had advised the territory government was putting off discussions about the West Basin land swap until after the May 18 federal election.
More than a month after the Coalition's surprise election victory, the territory government has yet to contact the authority about restarting talks, according to the spokeswoman.
She said the "current allocation for diplomatic land was not sufficient" to meet current or future demand for embassies.
"The provision of adequate land supply for establishment of new or expansion of existing embassies is essential if Australia is to remain an effective voice in international affairs," she said.
"The NCA would welcome the recommencement of discussions with the territory government to collectively help meet our international obligations to provide land for diplomatic missions."