A working port will be drastically scaled back to make way for an 8500-home housing project on Sydney Harbour.

In what government officials are calling “Sydney’s newest suburb”, Glebe Island’s port will be turned into prime waterfront housing to be built around a new metro station under construction.

Sydney’s Working Port Coalition was quick to express its “extreme disappointment” with the decision, arguing there are massive economic, supply chain and environmental risks associated with the project.

Cement, gypsum and sugar handling through the port will close by no later than 2030 under the project.

The state government said the suburb was minutes from the CBD, connected to multiple public transport options and would convert underused land into housing, although just 10 per cent of the homes will be affordable or essential-worker dwellings.

“Not everyone will welcome change, but cities don’t stand still,” NSW Premier Chris Minns said.

“If Sydney is going to remain a place young people and families can afford to live in, we have to use well-located land better and plan for the future.”

The Glebe Island project was floated as a back-up plan when another controversial proposal – turning Rosehill Racecourse into a 25,000-home mini-city – fell apart.

Speaking on behalf of the port coalition, Business Sydney executive director Paul Nicolaou said the call ended the harbour being used as a working port.

The government has said it will consolidate the harbour operations into nearby White Bay, while also building a new staging area there to ensure fireworks displays including New Year’s Eve can proceed.

“For the past two years, the [port] coalition, which is made up of 24 organisations that support the retention of the port, has consistently highlighted the significant economic, supply chain and environmental risks associated with this planned course of action,” Nicolaou said.

A station for Sydney’s driverless metro is under construction near the site.

The state government has continued with its plan to build housing projects around the stations.

NSW is behind on its commitment to deliver 377,000 new homes by 2029 under nationally agreed targets.

-AAP