Leeds City Council (LCC) has announced that a new multi-million pound entertainment arena is to be built at a site in the city centre.

The council's executive selected the 5.1-acre (2.06-hectare) Claypit Lane site for the new 12,500-seat venue, which is part owned by Leeds Metropolitan University. Council land at Elland Road will be retained as a back-up option for the development after it was adjudged that the city centre location will be more beneficial to surrounding areas, and can also take advantage of the existing public transport infrastructure.

It was also decided that LCC will take on the £30m arena project itself, after two bids from interested developers were deemed to be unaffordable. The cost of the scheme will now be met by the council and regional development agency, Yorkshire Forward. Andrew Carter, executive board member for development, said: "The Claypit Lane site brings all the advantages of a city centre scheme – it will have a real regenerative impact to a key gateway into Leeds; it benefits from great public transport links, and will complement the activities of the universities.

"The council is determined to deliver an arena in Leeds but it is clear that the credit crunch and its impact on the property market has made the prospect of securing an affordable proposition through the developer competition very challenging." It is anticipated that the arena, which will be operated by SMG Europe, will add an extra £28m to the city's arena. SMG's managing director, John Sutherland, said: "We have every confidence in the council's commitment and capability to deliver a venue which will be the most suitable for the people and the economy of Leeds."