Tesco and Sainsbury's are squaring up for a battle over a site in north Liverpool that forms the centrepiece of a large regeneration project.

Sainsbury's signed a deal with developer St Modwen this week to build a 110,000 sq ft supermarket at the heart of the £150m scheme, which will include 480 new homes, 80,000 sq ft of light industrial units, a new library and leisure facilities.

The retailer said it had the green light to build the flagship store on the Great Homer Street site because St Modwen already had planning permission for the store as part of the regeneration plans, dubbed Project Jennifer.

However, Liverpool City Council told The Grocer there was no guarantee the Sainsbury's scheme would go ahead, because Tesco owned land on the site and had submitted rival plans for a smaller superstore. While Tesco’s plans were initially turned down, an appeal was lodged that will be decided this Tuesday.

“If Tesco gets planning permission for the store, ultimately it could make it very difficult for Sainsbury's to open a store in the area,” said planning officer Kevin Baker. Baker also said the proposed Sainsbury's store was large for the site, “but given the benefits that are coming as part of the regeneration masterplan, the council considered that a store of that size was acceptable.”

Sainsbury's declined to comment on Tesco’s application, but, in a statement, Jo Try, Sainsbury's regional development executive, said the St Modwen deal was an “important breakthrough at a time when the entire development industry is struggling to make schemes stack up”.

Michelle Taylor, regional director of St Modwen, said development could start as early as next spring.

“We welcome the news that Sainsbury's wishes to become part of the transformation of Great Homer Street,” she said. “However, we cannot overstate the amount of work still to be done before we can proceed. Once this has been resolved, we can proceed with the land assembly.”