Sweet Street in Holbeck and land adjacent to Leeds United's Elland Road football ground were thought to be the only two places left in the race to become the home of the 12,500-seater arena.

But, at a dramatic meeting of the local authority's executive board, senior councillors decided on Clay Pit Lane as their preferred location for the flagship scheme.

The five-acre site stands near the Merrion shopping centre and is part-owned by the city council and Leeds Metropolitan University.

next to Leeds United's Elland Road football ground were thought to be the only places left in the race to become the home of the 12,500-seater arena.

But yesterday the council's executive board decided the preferred location should be Clay Pit Lane, near the Merrion Centre and on the outskirts of Leeds's studentland.

A site at Elland Road was selected as a fall-back option.
It was also decided that the council should build and own the arena, rather than handing over the scheme to the private sector.

Coun Andrew Carter, the authority's deputy leader and executive board member for development, said: "The Clay Pit Lane site will have a real regenerative impact on a key gateway into Leeds. It also benefits from great public transport links and will complement the activities of the universities to create a real buzz in this part of our city."

The decision was greeted with dismay, however, by Jan Fletcher and Peter Gilman, the rival property tycoons who had been shortlisted for the contract.

Ms Fletcher's Montpellier Estates firm would have built the venue on a five-acre plot she owns at Sweet Street, south of the city centre. It is understood Mr Gilman's GMI group was looking to use council-controlled land at Elland Road.

Ms Fletcher said she was "shocked and extremely surprised" by the announcement.

A spokesman for GMI said its staff were "very disappointed".

Coun Carter said analysis had shown the council would get better long-term value for money by developing the arena itself.

He also said music industry giant SMG remained on board as preferred operator and stressed that the venue's estimated 2012 opening date was unchanged.

The Clay Pit Lane site is currently home to an unused university building and car park.

It had been earmarked for a £275m project to create 500 homes and a 'cultural quarter' until the developer pulled out. The plot is owned by the city council and Leeds Metropolitan University.

Council chiefs now intend to buy the portion controlled by the university.

The Elland Road reserve option site is part of 30 acres the local authority already owns around the ground. It was not clear today whether it is exactly the same slice of land identified by GMI as its favoured location for the arena.