The New China Palace, a waterfront restaurant said to be the second-old diner in the city, could lose its lease early next year.

In a June 11 letter, Oak Ridge City Manager Mark Watson told the restaurant’s Chung-Nan Chou and Fu-Li Chou that the city will not renew the lease when it expires in February or March 2013.

Watson said the relatively new Oak Ridge Recreation and Parks Board has developed a master plan for the waterfront area that recommends the city-owned restaurant site on Melton Lake Drive be remodeled as a bathhouse facility. It would support the “growing number of rowing and public activities on the site,” Watson said.

There are also plans to build a waterfront pavilion and water park at Melton Lake Park and improve the playground, Watson said.

A previous plan to replace the New China Palace with a casual diner stirred a public uproar. That proposal was included in a waterfront plan approved by Oak Ridge City Council in December 2009.

The plan calls for improvements on riverfront property from Elza Gate Park to Rivers Run Boulevard.

But the proposal to replace the restaurant was put on hold in November 2010 after the public uproar and only three bidders showed interest in building the casual diner.

In February 2011, the Oak Ridge City Council approved a two-year lease with the New China Palace that give the city time to review its plans. The lease began March 1, 2011, and would presumably end Feb. 28, 2013, although city officials were not available to give a precise date Thursday afternoon.

In a second letter, dated June 29, Watson said the city wanted to give the New China Palace “plenty of time for transitioning to a new location.” He said city officials and the Oak Ridge Chamber of Commerce are willing to help the restaurant find a new site, and he suggested several alternatives: Jackson Square, Grove Center, and the west end of town.

“We do want him to continue, and he’s got a built-in clientele,” Watson said Friday.

In a letter responding to Watson, Cheng P. Ren, New China Palace manager, said the landmark restaurant, which has been at its current location for 39 years, would prefer to stay where it is.

“Aside from Big Ed’s Pizza, there are no older restaurants in the city,” Cheng said. “As you are very aware, many of the citizens of this city consider the restaurant a true asset to the city.”

He said the restaurant has been a good public citizen. While upgrades are needed at the city-owned 3,600-square-foot building, the restaurant rent could be used to help pay for those upgrades, Cheng said.

He said New China Palace executives would like to be included in the waterfront development plan, if the restaurant has to move, and would consider a smaller store, “if it fits in better with the overall scheme being considered for the waterfront.”

If that’s not an option, Cheng said, the New China Palace would work with the city and chamber to evaluate alternative locations.

“We would rather be part of the solution than make this a political situation,” Cheng said.