A £42million project, backed by Prime Minister David Cameron, to build a world-leading centre helping to find cures for cancer and AIDS in the heart of Hampstead hangs in the balance after a planning blunder from Camden Council.

Councillors will be hauled back to the Town Hall next Thursday to decide on the joint venture between the Royal Free Hospital and University College London all over again after lawyers found serious flaws in the way Camden planning officers assessed the scheme.

In February, some of the world’s leading research professors and doctors celebrated the news that Camden Council had granted planning permission for the Pears Building, at the site of an existing Royal Free car park on the edge of Hampstead Green in Rosslyn Hill.

But all that could change after solicitors acting on behalf of the Hampstead Green Neighbourhood Group (HGNG) threatened the council with a judicial review into its decision to give the scheme the go-ahead.

They claim insufficient consideration was given to the “serious damage” the seven-storey building could have on the area’s heritage. The institute would be set right next door to Grade-I listed former church St Stephen’s and borders a conservation area.

Council lawyers initially dismissed the threat, saying there was “no merit in any legal challenge”, but have now found serious flaws in how planning officers originally considered the scheme.

The council’s planning officers wrote on advice of their legal team: “At present, a decision to grant planning permission is vulnerable to a successful legal challenge in that the council has not demonstrated that it gave considerable weight to the harm to the setting of the listed building and of the nearby conservation area that the proposed development would cause.”

The legal team has ordered it be sent back to the planning committee next week where councillors could vote to throw out the scheme should they so desire.

Chris Fagg, a member of HGNG, said: “The heart of our concerns revolve around acute dangers to St Stephen’s as a result of basement excavations, and also the loss of light to Hampstead Hill School.

“There is increasing concern over whether Camden Council’s planners, in the face of powerful developers coming in one at a time, are giving proper consideration to heritage.”

English Heritage said the scheme would cause “some harm” to surrounding conservation areas and listed buildings.

Councillors unanimously granted planning permission in February in the face of opposition from Hampstead Hill School, St Stephen’s, and more than 300 residents.

Cllr Phil Jones, who sits on the planning committee and is cabinet member for planning, said before voting for the scheme: “I find myself agreeing with English Heritage, the Heath and Hampstead Society and the officers that there’s clearly an impact on St Stephen’s as a Grade I-listed building. But is it significant enough to outweigh the tremendous benefit offered by medical research? It’s a question of balance.”

Camden Council did not wish to comment. A spokesman for the Royal Free said it “awaits the decision”, adding: “It would be inappropriate for us to comment further at this stage.”

Construction work for the Pears Building, which is intended to house some 200 researchers and features a two-storey patient hotel, was expected to begin in spring earlier this year for a 2017 opening.