As part of the deal, the territory has handed the National Capital Authority a huge parcel of land in Curtin for new diplomatic embassies.

The move to shore up the supply of embassy land for the next 25 years will come at a cost to horse owners, who will be forced out of their inner-south paddocks from 2022.

After years of negotiations and frustration, the ACT government has completed a land swap which brings it a step closer to delivering on a long-held vision to redevelop the Lake Burley Griffin waterfront with apartments, a public park and promenade.

The deal means the territory can reclaim about 2.8 hectares of lake bed land, which stretches in an arc from Henry Rolland Park along the waterfront. The government's City Renewal Authority is planning to spend $35 million to redevelop the land with a boardwalk and two new jetties.

The project is a key part of the wider vision for the precinct, which authorities now refer to as "Acton Waterfront".

The government has earmarked up to 2000 apartments and a large urban park for the prime lakeside location, although the renewal authority has yet to finalise its refreshed masterplan for the precinct.

City Renewal Authority chief executive Malcolm Snow said the long-awaited deal marked a significant milestone in the landmark project.

"We are pleased this agreement has been reached because it will enhance the creation of a fantastic new addition to the city centre and the national capital," he said.

"We want to create a really compelling destination for locals and visitors to our city and [this] certainly contributes to our ambition to be one of the most liveable cities in the world."

The urban renewal agency will soon lodge plans with the National Capital Authority to build the boardwalk and jetties.

Construction of apartments at Acton Waterfront likely won't start for another five years, with land earmarked for housing not scheduled to be released until the mid-2020s.

The ACT government and Commonwealth have, until now, been unable to agree on a deal which would allow the territory to push ahead with its plans to redevelop the waterfront, while also providing the National Capital Authority with much-needed land for new embassies.

The authority's chief planner last year told a federal parliamentary inquiry that countries looking to establish new embassies in Canberra were being turned away because of a lack of available land.

A number of different options have been considered in recent years. Documents published under freedom of information in late 2018 showed that a parcel of land in Hughes was being explored at one stage.

The Canberra Times understands the site in north Curtin was identified as the preferred location about 18 months ago.

The chosen site covers almost 32 hectares, split across two blocks of land off Cotter Road. The first is bounded by Cotter Road, McCulloch Street and Yarralumla Creek. About 70 per cent of the large block immediately east has also been handed over to the authority as part of the deal.

The larger block is known as Curtin horse paddocks, which Territory Agistment operate under a licence agreement with the ACT government.

Horse owners will be allowed to remain at the paddocks until 2022.

An ACT government spokeswoman said it was up to Territory Agistment and owners to choose where horses went after that. The spokeswoman said the territory was considering a new site for government horse paddocks, which should be established within three years.

The National Capital Authority believes the Curtin site is large enough to meet demand for new embassy land for the next 25 years.

The authority's chief executive, Sally Barnes, said the process to rezone the land would start in the next six months. She wouldn't be drawn on when new missions would be built, but stressed the existing arrangements for horse owners wouldn't change for the next two years.

Ms Barnes said securing the extra land was vitally important for Canberra as the national capital.

"I would say this is nation building," Ms Barnes said.

"This is the stuff of the capital and the DNA of a successful capital. To have more nations wanting to establish themselves and enlarge their presence in your country is a big feather in the cap."

Asked if the ACT was being short-changed by the Commonwealth, given it was receiving 2.8 hectares of lake bed land in exchange for 31 hectares of open space, Ms Barnes and Mr Snow said the project would benefit Canberra as a whole.

"In negotiations it was realised that this was of benefit to all parties and the city in general," she said.

Ms Barnes acknowledged the economic uncertainty created by the coronavirus pandemic, but said it was important to keep planning for the future.

"We'll just have to see what happens," she said when asked if the COVID-19 outbreak would have ramifications for the project.

"But at this stage one of the best things that we can do is start planning for these projects so that when we do get to the other side there is some construction activity and some more trade."