Plans to reopen the Millennium Dome as an entertainment arena could spell disaster for Croydon's own arena plans.

Stanhope and Schroders, who own and manage the 8.5-acre site next to East Croydon station, has said a 23,000 capacity arena replacing the dome in 2007 makes rival developer Arrowcroft's plans for a 12,500-seat arena in Croydon unworkable.

But Arrowcroft, Croydon Council's preferred developer, has denied the claims saying the plans for the dome to be called O2 after its sponsor would complement its scheme despite fears over competition.

Charles Walford, a Stanhope and Schroders director, told the Croydon Guardian it had heard rumours about plans for the dome around two years ago. He said: "We've always maintained London does not have the market to support three arenas the dome, Wembley Arena and Croydon."

Although Stanhope and Schroders has said it feels a 12,500-seat arena is not viable it has considered its own plans for a smaller 6,000-seat arena.

A spokesman for Arrowcroft said: "We welcome plans for the dome, which will only be good for the capital. Our proposals for Croydon will complement those for the dome."