Hotel Delany will be allowed to trade later into the night, but not as late as they wanted.
Newcastle councillors voted on Tuesday night to allow the Darby Street pub to push back its closing time on Friday and Saturday from 12am to 1am on a 12 month trial basis.
The venue had applied to trade until 2am Wednesday to Saturday, which was scaled back from its initial proposal of 2am closure Monday to Saturday.
Deputy mayor Declan Clausen put up the alternate motion to amend the hours of operation to 1am on Friday and Saturday, with no changes to existing hours Sunday to Thursday.
He said a 2am closure was inconsistent with the city's after dark strategy, which refers to the night-time economy as operating between 9pm and 1am and "low impact venues" to trade until 2am.
Residents had raised concerns about how the plan fit in with the after dark strategy, and were also worried about additional noise and anti-social behaviour in the local community as a result of the plan.
Cr Clausen said he understood some residents would prefer the proposal be refused entirely, but a factor in his decision was council's refusal of the Beach Hotel's push for extended trading last year, which was later overturned in the NSW Land and Environment Court.
"In order to attempt to prevent a similar circumstance here in Darby Street, it's appropriate we consider a 12 month trial for this venue," Cr Clausen said.
Labor councillor Elizabeth Adamczyk said the alternate motion limited additional hours of operation to two a week, which was a significant reduction from the original proposal of 14 extra open hours.
Liberal councillor Callum Pull said the proposal had a "pretty comprehensive" plan of management, including RSA training and security measures, and recommendations from a noise impact assessment were incorporated into the conditions of consent.
Most councillors saw the move as a compromise, saying it was more in line with the after dark strategy and reduced the risk of Land and Environment Court action.
But Independent councillor John Church and Green councillor John Mackenzie disagreed.
Cr Mackenzie argued the new proposal still didn't fit with the after dark strategy, and could not see the methodology by which the 12 month trial would be assessed.
He said it was "dangerous territory" to pre-judge a development application based on whether it could be taken to court.
"We have to make a decision based on merits," Cr Mackenzie said.
Cr Church cited crime statistics that showed increased trading hours were linked to increased alcohol consumption and related harms as well as a NSW Liquor and Gaming guideline that said problem gamblers may be over-represented among electronic gambling machine players between midnight and 4am.
"The hotel at the moment has a poor track record with its local residents, who have tried tirelessly to get a response from management about noise complaints, about anti-social behaviour, about damage in their streets," he said.
"By extending the trading hours you're just making the problem worse."
Labor councillor Deahnna Richardson also voted against the proposal.
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