Newcastle City Council will decide whether to approve land exchanges with the Roads and Traffic Authority (RTA) for parcels at Cooks Hill, Sandgate and New Lambton.

The council needs the Darby Street, Cooks Hill, site - now used as an RTA staff car park - to extend Newcastle Region Art Gallery.

In exchange, it would provide property in Sandgate Road and Astra Street, Shortland, to the state to build more of the Newcastle inner-city bypass. The deal for Bridges Road, New Lambton, would permit road work there.

Newcastle lord mayor John Tate said it was essential that the council acquired the Cooks Hill property.

"It's important for the art gallery redevelopment," he said.

"We need that piece of land to give the art gallery a frontage to Darby Street. And part of the revitalisation of that area is to get some active shops along there."

A $10 million first stage of the $20 million gallery project would add a cafe, shops and exhibition and storage space.

A development application will be lodged soon.

Cr Tate said the stores would generate income for the gallery.

The Shortland-to-Sandgate section is one of the missing links in Newcastle's inner-city bypass.

The government has done some preparation but is yet to commit to building. The road's Rankin Park-to-Jesmond section is also yet to be built.