The concern was raised by Cr Teresa Stevenson as councillors considered a proposed new mobile trading bylaw at yesterday's planning and environment committee meeting.
The new bylaw, updating one dating back to 2004, includes a rule prohibiting mobile traders from operating within 300m of existing businesses selling ''like-kind'' goods or services.
The ''like-kind'' test would be applied to goods of the same type, such as coffee, and not more general comparisons such as hot food, council environmental health team leader Ros MacGill told the meeting.
If the bylaw was enforced, mobile traders would be eligible for an exemption only if they obtained letters granting permission to operate from existing businesses in the area, she said.
The existing bylaw had worked well but needed a ''tidy-up'', as there were now 140 licensed mobile traders in the city and the number was growing, she said.
However, Cr Stevenson said the bylaw's 300m exclusion zone would effectively prohibit some mobile traders from operating on council reserves.
That would include the Otago Museum reserve and others at Kettle Park, Marlow Park and Wickliffe Square, she feared.
''This is going to affect the vibrancy of business in the area ... we should be encouraging business vibrancy. Sometimes, these food stalls go on to become permanent businesses,'' she said.
Council staff pointed out the museum reserve was the only one used by a mobile trader at present, while a coffee caravan on the edge of Wickliffe Square was a permanent outlet on private property.
Councillors voted to approve the new bylaw for public consultation, despite continued opposition from Cr Stevenson, who abstained.
Ms MacGill's report noted the bylaw would protect public health and safety, as well as existing retailers' income, but the council remained committed to supporting local businesses and the vibrancy of the city.
Members of the public would have until October 11 to make a submission.
