In an ironic twist, the developer is a coalmining company.

LDO Coal, which owns Chain Valley Colliery, has opposed fellow mining company Coal & Allied's plan to build 623 dwellings on a 62-hectare site on Crangan Bay at Gwandalan.

In a submission to the Department of Planning, LDO Coal said it was planning to mine for coal in the area for the next 21 years.

LDO Coal said it aimed to mine directly under the Coal & Allied site, which could cause subsidence.

"The coal needs to be extracted before the residential development, otherwise there will be a loss of coal reserves," LDO's submission said.

"It would be impractical, costly and untenable to develop the residential precinct and mine the area."

But Coal & Allied said in a planning report that significant residential land in Lake Macquarie and Newcastle was "contained within mine leases".

"It is common practice for mining to occur, and future mining to be proposed, beneath established residential communities," the report said.

Coal could be mined beneath its site using "partial extraction mining methods without significantly impacting the residential development", Coal & Allied said.

LDO said it wanted to fully extract all the coal and any sterilisation of coal would reduce the life of the mine and cause "considerable impacts" on jobs and the state economy.

Coal & Allied's report said full extraction of coal under its site would have an "unacceptable impact on the area, regardless of whether residential development were to occur".

Coal & Allied said its housing development would provide $16.8 million in benefits to the state, but the cost of sterilised coal in the area would be only $7.3 million.

Coal & Allied will dedicate 206 hectares of land to the NSW government for conservation as part of an arrangement to enable the development.

LDO Coal said it was opposed to the conservation land deal if it led to "additional controls being applied to planned mining activities".