Housing plans are being discussed for the same site chosen as the best place for a new Otley hospital.
Land owner Garnett's is asking Leeds City Council to consider a residential development of 30 to 40 houses on land to the east of the riverside mill - with a new access road on to Pool Road.
The site is the same identified just last week by Leeds Health Authority as the best for the new hospital.
It also looked at another site in Otley and at Menston's High Royds Hospital as other alternatives.
It is likely only the houses or the hospital will be built, but both options include the badly-needed new access road to Garnett's which will take delivery lorries out of the town centre. Now members of Leeds Council's area planning panel are to visit Garnett's before making a decision on the outline housing application.
At a meeting of the development control panel (West) Martin Sellens, principal planning officer, said one of Garnett's main interests was to re-route its delivery vehicles from the centre of town to the Pool Road where they could link up with the new East of Otley relief road.
And once the access road was built, Garnett's could close its access at Mill Lane and stop heavy vehicles from having to go through the town centre.
Town and city councillor Graham Kirkland said permission for housing should not be given.
"This site is unsuitable for residential development. Local roads would have difficulty in coping with the additional traffic and parts of the site could be affected by flooding,'' he said.
Tom Hurst, Garnett's managing director, said discussions had been taking place for some time between Garnett's and the planning authority.
"First and foremost, Garnett's business is as a paper maker in Otley and our first responsibility is to the staff who have made the business successful,'' he said.
"Various options remain and a final decision will depend on the views of the local community and the commercial interests of the company.''
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