City of Newcastle will have to call for proposals on the potential reuse of Shepherds Hill cottage for a second time after delays in gaining state approval for the historic building's restoration.
The council called for expressions of interest to lease the cottage for up to five years in February last year.
It indicated at the time an expectation of a lease beginning in early 2019 after restoration work was completed.
The EOI process came after council conducted community consultation about how the site should be used, with feedback supportive of a cafe or arts space.
The council completed most of the external repairs last year, but has only recently received approval to carry out the internal restoration.
The long delay means the council will have to call for new proposals to re-use the cottage, in-line with the site's conservation plan.
A City of Newcastle spokesman said a timeline of when that would occur could not be confirmed until approval was gained for some additional exterior work.
"The Conservation Management Plan (CMP) for the Shepherds Hill Defence Group site was recently endorsed by the NSW Heritage Council after a revised CMP for the whole site was ... submitted to the Office of Environment and Heritage in April," the spokesman said.
"The City has completed stage one of the restoration, which included work on the majority of the building's exterior. Now the CMP has been endorsed, the next step underway is progressing an S60 application to the Heritage Council for the remaining exterior works, which include the demolition of the existing outdoor toilets."
The spokesman confirmed the future EOI process would still be conducted for a "rental tenure of five years".
The adaptive re-use of the 182-square-metre building, the former base of Marine Rescue Newcastle, was previously mooted as a potential kiosk or cultural facility.
Newcastle lord mayor Nuatali Nelmes last year said the council was looking for someone to reimagine the timber structure as "a café or tea room, museum, art space, community use facility or for some other activity".
The site, sitting at the top of King Edward Park and on the popular Bathers Way walk route from Nobbys to Merewether, offers 230-degree views of Port Stephens and the Hunter coastline.
Shepherds Hill Defence Group, as the cottage, nearby battery observation post and gun placement are collectively known, sits on Crown Land with City of Newcastle the acting trust manager.
The military installment was designed to defend Newcastle's coal port after the 1878 Royal Commission into Colonial Defences. It served as a command post until the end of World War Two.