Part of Sai Ying Pun is to be redeveloped to add open space and make way for around 180 new homes, the Urban Renewal Authority (URA) announced on Friday.
The site at Queen's Road West and Kwai Heung Street covers an area of nearly 14,000 square feet.
Some 100 families and 20 shops are expected to be affected by the redevelopment.
The URA said the buildings there are about 60 years old on average and are in poor condition.
"This is to restructure and to improve the belt environment, at the same time enhance the pedestrian connectivity and accessibility, walkability of the area," said Mike Kwan, a general manager for planning and design at the URA.
The project is right next to an area at Sung Hing Lane and Kwai Heung Street that has been under redevelopment by the URA.
The URA said the two projects combined can add more than 1,600 square feet of open space to Sung Hing Lane Children's Playground that sits in between the two sites.
"We adopt an integrated approach to carry out redevelopment and revitalisation to provide new open space and uplift existing facilities to meet community needs," said Kwan.
A woman who runs a stall in the area said the redevelopment will force her to move out.
"How can we survive? We rely on this stall to support our family. We have no idea what to do now. How can we afford the rent outside? It's impossible. The economy is bad as well. We don't know what to do," she told RTHK.
But a dentist in the neighbourhood voiced his support for the redevelopment plan, saying he is not worried about losing customers when he has to move his clinic elsewhere.
"If I'm doing good, they will follow me. We have their information, we will notify them. When they call us, we will inform them where we've moved," he said.
Meanwhile, a visitor to the children's playground welcomed the plan for more open space there.
"I like it. It's so crowded here. The tenants are moving in. [This playground] will be more and more crowded," he said.
The URA estimates that the new project can be completed by 2032.