The review, by the Auckland University school of architecture and urban design's Dr Diane Brand, has recommended the extension is built no further than the edge of Harrop St, on the border of the car park beside the cathedral.
It also suggests the extension on the Moray Pl side of the building be reduced.
No-one from opposing group Hands off Harrop who would talk to the media could be found last night, but it is unlikely the group will welcome the review.
The extension, part of an upgrade estimated at more than $40 million, would add a three-storeyed glass atrium on the Harrop St side of the town hall.
The council has estimated extending conference facilities there would bring more conferences and delegates to Dunedin.
Dr Brand, hired by the council to review the project earlier this year, produced a list of 15 recommendations.
Those recommendations suggested the additions be designed in "contemporary architectural style", and that they respect, not challenge, the scale of the building's facade.
Council strategy and development general manager Kate Styles said the report was received last week.
The recommendation the extension should be built to the edge of Harrop St meant it would be about one-third smaller.
Staff would now have to "see whether that option is viable".
"We're looking very carefully to see if the smaller envelope would give us the functions we need."
The review said the view from Moray Pl to First Church was an important vista that needed to be maintained.
"The space between the Town Hall and St Paul's could be effectively redesigned to provide a north-facing square which could showcase the fine stone walls and archeological remains which exist on the site in a similar manner to the Michaelerplatz in Vienna."
The review suggested the proposal to shift a loading area for the building from Harrop St to Moray Pl be reconsidered.
It also called for an architect involved in the University of Otago information services building to be design adviser.
