Developers hope to build 141 apartments on the site on Lock Lane, Castleford, near the town's spectacular new footbridge spanning the River Aire.
But the scheme has been recommended for refusal by planning officers because of the closeness of the former Hickson and Welch chemical works.
They say the site still has hazardous substances on it and planning permission for another chemical firm to move in and start up.
In 2005 Hickson and Welch closed, with more than 300 workers losing their jobs.
And 15 years ago an explosion tore through the site, killing the five workers. Fire broke out during cleaning of a vessel containing potentially unstable sludge which had not been cleaned since 1961.
The site of the proposed apartments sits just over the river from the old Hickson and Welch site.
Developers MDM Homes want to build an eight-storey development with car parking.
But a report to the council's planning and highways committee says: "There is still a hazardous substances consent at the site that could be used without further permission and still hazardous substances in situ.
"On further consultation with the Health and Safety Executive they reiterated that given the hazardous substance consent on the neighbouring site which could be used to its full potential at any point, that the risk to future occupiers is too high."
A rejection could come as a blow to the area, which looks set to enjoy a renaissance with the opening of the new footbridge last week.
The planning and highways committee will meet to decide on the proposals next week.
A spokesman for Wakefield Council said: "The old Hickson and Welch works retains consents to store chemicals and as long as these consents remain in place the Health and Safety Executive will object to any development proposed in the immediate area.
"We are working with the site owners to look at the future development of the Hickson and Welsh area."