Church Neighbourhood Goods has clashed with the City Renewal Authority over construction works in Odgers Lane, saying it cut their seating capacity by nearly 90 per cent, and will close their doors on Saturday.

The construction works at Odgers and Verity Lanes will involve upgrades to sewage and drainage infrastructure as well as renewal work the government says will create urban spaces for pedestrians and diners.

Co-owner Nick Mico said this was a major point of frustration, given his cafe already provided that service.

"We were understanding that these are very old buildings, they've got ageing infrastructure and that needs to be renewed, we understand that but all we were saying from the get go was 'Let's be fair about this'," co-owner Nick Mico said.

With a capacity of about six patrons inside its hole-in-the-wall space compared with about 70 outside, the cafe relied on a permit for outdoor dining in the laneway to keep up its trade.

The City Renewal Authority says it cannot renew the permit until works are completed, leaving co-owners Nick Mico and Brock Dunn unable to afford to pay their rent for the Civic shopfront.

"The Church business is exactly the type of business that we would like to see stay in these laneways but the problem however, is that both the Sydney and Melbourne buildings are some of the oldest commercial buildings in Canberra," chief executive Malcolm Snow said.

"And the infrastructure, particularly the underground infrastructure in the laneways in those buildings, is now at a point where it needs replacement.

Plans to renew Odgers Lane would not only force the business to stop operating its outdoor dining space, but mean the overall space reduced once works were complete.

"They're saying that we're electing to leave, but that's not the situation - we don't have an option really, they've made a decision for us," Mr Mico said.

Mr Snow said that anyone who takes up an outdoor dining permit "does so on the clear basis that it may be necessary to actually remove any structures or businesses on public land when urgent public works are required".

"We can't build the project around them."

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"In the space that they occupied for the outdoor dining permit, is in fact one of the pipes that has to be replaced, so we can't imagine the situation where we can only upgrade part of the pipes."

Verity Lane Market will also close its alfresco dining space during construction, but has the indoor capacity to continue operating.

Mr Mico said the "grungy" space had suited the business well, with the cafe doubling as a skate shop, and the young business owners trying to coax out Canberra's "Melbourne vibes".

"I've grown up in Canberra my whole life and we've intentionally been trying to bring to Canberra things that we think this city needs, and this is what we thought this city needed."

"It's quite disheartening."

The City Renewal Authority has offered to pay for the removal of the cafe's outdoor dining structure, and offered it a priority return to the space once works are complete.

"We have offered Church the first option to reestablish their outdoor dining space in the same location immediately after the works," Mr Snow said.

The next stage of the project, originally due to begin in April, has been pushed back to August because of delays within the construction industry.

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