Kiama MP Katelin McInerney is calling Sydney-based developer Level 33 to work with Kiama Council after she endorsed the reduction of the Akuna Street proposal to eight storeys.

McInerney issued a statement in the wake of the plan being granted State Significant Development status to say that the compromise from a much-higher proposal was a workable solution for the town centre.

"This proposal of eight storeys is a significant improvement on the previous 13-storey proposal," she said.

"This reduction makes the proposal a more appropriate scale for the site, given its location."

McInerney is urging local residents to have their say once the details of the proposal are put on exhibition in the new year.

"I continue to call on Level 33 to work with Council and the community through this process regarding the specifics of their proposal, to reach an outcome which delivers the best results for Kiama’s Town Centre," she added.

"I know that since the sale of this site to Level 33 by Council, there has been considerable concern about the future of the site.

‘I want to be clear with the community, it is my job to represent your views and this determination is only the first step in the process of a State Significant Development.

"This is not an approval that has been granted.

"The project will be required to go through a rigorous and transparent assessment process, as is the standard, including public exhibition when the community will be able to have their say."

The NSW Government on Friday announced a list of sites throughout NSW that have been rated as state significant, which means that the developers can apply to the Housing Delivery Authority for increased height limits.

Kiama Council had previously allowed a maximum of six storeys for the Level 33 proposal.

After SSD status was granted, Kiama Mayor Cameron McDonald expressed his disappointment with the NSW Government's decision.

“Like many in our community will be, I’m disappointed by this decision,” Cr McDonald said on Friday afternoon.

“Council has recently adopted planning controls for the Kiama town centre that reflect extensive community consultation and set a six-storey height limit for this site.

The state’s decision to advance an eight-storey proposal is not consistent with those locally adopted controls and community expectations.

“Housing delivery matters, but so does getting the right outcome for Kiama.

"Development in the heart of our town must respect our local character, amenity, infrastructure capacity and the plans our community has helped shape.”