The threat of closure for an iconic Sydney hotel has prompted the local mayor to urge all New South Wales councils to help protect live music.

The Annandale Hotel in the city's inner west has gone into receivership because of financial difficulties.

Leichhardt Mayor Darcy Byrne says the hotel is in trouble because of legal bills incurred defending noise complaints.

Councillor Byrne is proposing a "good neighbour policy" to resolve noise complaints, and for existing venues to be given protection against new neighbours.

"For too long councils have pandered to a handful of residents who move in next to a pub and then make complaints about noise," he said.

"Iconic venues such as the Annandale, that have existed as live music venues sometimes for decades, need to have their role in the community respected.

"The amenity of local residents has to be respected but the best way to do that is through a good neighbour policy that brings licensees and residents together to resolve their disputes amicably, rather than through legal action that costs rate payers hundreds of thousands of dollars and is sending the live music industry broke. We can do much better than that."