Education Minister Adrian Piccoli has appealed directly to Lord Mayor Clover Moore asking her to intervene in the negotiations that have been stalled for months.

A working party established to increase primary school capacity in the area agreed last October that the Wattle Street property was the preferred site to establish a school for 1000 students.

The department is prepared to fork out $74 million for the old council depot on Wattle Street, which includes a concession for the cost of remediating the severely contaminated site.

But the City of Sydney is asking market value for the site, which they put at up to $120 million, less $9.5 million for the cost of decontamination.

Cr Moore says it is the state government's responsibility to fund public schools, not local government.

"The land belongs to City ratepayers and proceeds from the sale have been earmarked for community facilities that the Council is responsible for, including new childcare, open space and recreational facilities," she said. "Any substantial reduction in the value of our assets will reduce our ability to deliver on these publicly adopted commitments."

In a letter to the Lord Mayor, Minister Piccoli said if the department's standing offer of $74 million was not accepted by the end of the month, "the department will need to go back to the community to attempt to find an alternative site".

"I am advised that this process would make the 2017 opening date impossible to meet," he wrote.

Moving the overcrowded Ultimo Public School to a larger site was one of 14 major school projects funded in the state budget.

The department's initial offer of $49 million, the value of the site as an education facility, was rejected outright.

A key point of contention in the sale negotiations has been the cost of decontaminating the site.

The department argues that completely eliminating toxic and hazardous materialswould cost between $18 million and $25 million. But the council is only willing to consider the cost of decontamination for commercial use, which is about $5 million.

Liberal City of Sydney Councillor Christine Forster says the council "has a massive war chest of money" and needs to "do the right thing".

"We're talking about a crucial issue here and it's time they came to the negotiating table with some goodwill and a realistic approach and take on board some of the cost in order to get this project off the ground," she said.

Cr Moore said the City would consider a settlement that included non-cash components, such as an on-site childcare facility or multi-purpose recreational courts.

"The State Government itself seeks a proper return on assets commensurate with market value and highest and best use, including for its proposed sale of the current Ultimo Public School site and numerous other asset sales including the particularly shocking sale of public housing in Millers Point," she said.

"The State Government should not short change City ratepayers at a time when they are about to reap huge windfalls from the redevelopment of White Bay."

Corrections: An earlier version of this report contained an incorrect photograph of the proposed site, and gave the City of Sydney's cost of decontamination as $5 million.