Hunter and Central Coast Development Corporation put the land up for sale last November, marketing the parcel which is adjacent to the Crown Street light rail stop as "Rail Bridge Row".

"We received several proposals as part of a competitive tender process, and City of Newcastle's offering impressed with a combination of uses closely aligned with the Revitalising Newcastle objectives for the city," HCCDC chief executive officer Valentina Misevska said.

"Rail Bridge Row is a long a narrow site with a stretch of Hunter Street frontage, and the City of Newcastle proposes to optimise this with more homes, jobs and public spaces. It also proposes to use the site to create a shared laneway, creating a new pedestrian and cycle connection from Hunter Street through to Wharf Road, which is also in line with our objective to create more connections between city and waterfront."

The 4125-square metre site was purchased for $2 million, the council said, after councillors endorsed the purchase at last week's ordinary council meeting.

Newcastle lord mayor Nuatali Nelmes said the acquisition would support the ongoing revitalisation of the city and strengthen the city's cycling infrastructure.

"We envisage this site will eventually be used for a cycleway connection, as well as a mixed development building that could include ground floor retail, affordable housing for key workers and commercial," she said.

"[It] aligns with our vision to bring people to the city centre by strengthening connections between the city and waterfront, creating employment opportunities ... more public space and delivering better transport."

Cr Nelmes said the land would ultimately allow council to build an east-west cycleway through the city, despite recent development near the old Civic train station effectively blocking the ability to run a continuous path along the old corridor.

"The purchase will allow us to deliver a much-needed east-west commuter cycleway and will be followed in coming months by presenting an east-west ... concept plan to the Newcastle cycling working party," she said.

The Newcastle Herald reported last year on cyclists' dismay at the lack of a continuous east-west link and the disconnect between multiple planned cycleways.

The council has plans to build a separated bi-directional cycleway from Wickham Park to Union Street along the southern side of Hunter Street. It also plans to build a similar path when it redevelops Hunter Street Mall and has mooted a path on part of Wharf Road.

Greens councillor John Mackenzie said the land, which adjoins the future Darby Plaza, offered "some clarity" on an east-west link.

"This will clarify a lot of those questions and for instance, take out King Street as an alternative," he said. "It really clarifies our options in terms of where that inner-city cycleway can go and how it can be made safe."

The council is also in the process of having land it is set acquire on the eastern side of Rail Bridge Row rezoned from community to operational land.

While there are no long-terms plans locked in for that parcel, the council is considering using it to extend the Boat Harbour car park.