Leeds City Council (LCC) is set to press ahead with the development of the city's new arena, despite the government's request for more work to be done on the project's business case.

The Department for Business, Innovation and Skills has said that more work needs to be done before it enables regional development agency Yorkshire Forward to contribute public money towards the proposals. Sheffield International Venues (SIV), which operates a 13,000-seat arena in Sheffield, has welcomed the government's decision. However, LCC insists it will pursue the project with or without government approval.

Andrew Carter, LCC executive member responsible for Leeds Arena, said: "The development of an arena in Leeds is our number one priority and we are fully committed to bringing this ambition to life within the already published timetable. "While the government may wish to delay its own funding approval, we are confident that we have the ability to proceed, irrespective of the government's position on this matter."

LCC argued that the plans would match similar projects funded by regional development agencies, such as the Liverpool Arena, although Sheffield City Council and SIV have raised concerns over the potential impact an arena in Leeds could have on Sheffield Arena. SIV chief executive Steve Brailey said: "There is no doubt that a Leeds arena would have a profound effect on the viability of Sheffield [Arena]. Our view is that there is only demand for one arena of this size in the region.

"We welcome the decision for a rethink on the funding. It would seem unwise for a local authority to be investing so much money in an arena at a time when public services are under threat." Designs unveiled in September for the interior of the new Leeds Arena, which will be operated by SMG Europe, feature a two-tier seating bowl layout that will see the furthest seats located just 68m (223ft) from the stage.

Meanwhile, the council has now confirmed that SMG Europe has signed a guaranteed 25-year lease agreement to operate the venue.