The £6 million Newbyres Crescent development in Gorebridge, Midlothian, opened eight years ago, but all 64 council houses could be demolished amid safety fears over carbon dioxide gas leaking into properties from former coal mines.
Residents were expected to relocate for up to six months as engineers installed a protective membrane to block out the dangerous gases.
But it has been revealed Midlothian Council officials plan to flatten and rebuild the entire estate - a move that would cost £12m - or demolish the properties and put the vacant land on the market.
The five worst-hit homes have already been evacuated.
It is understood the local authority is considering legal action against the developer to recoup millions of pounds lost on the development.
The gas is said to have penetrated homes due to a 25-year build-up of pressure.
Resident Dawn Mills, 30, said it would be "not possible" to re-house 64 families elsewhere in Gorebridge.
Councillor Jim Muirhead called for a 70-house development planned for Gorebridge to be accelerated to accommodate those affected.
Councillors are set to decide on June 17 whether to approve demolition plans.
A council spokesman said: " Residents are being protected at present through the provision of detectors and air quality surveillance.
"A 24-hour emergency support service is in place to allow people to be rehomed people quickly if necessary."