The latest rendering of the planned redevelopment of the Domino Sugar site on the Brooklyn waterfront. The project requires more approvals. SHoP Architects

The city has reached a compromise with the owner of the Domino Sugar site along the Brooklyn waterfront that would result in additional affordable housing, a critical moment for a mayor who campaigned for office promising to cut tougher deals with developers.

Under the agreement, Two Trees Management Co. will set aside 537,000 square feet of affordable housing—or 700 apartments—for its sprawling project in Williamsburg. The city had been pushing for 550,000 square feet of affordable space, according to people familiar with the matter.

Possible approval for the project remains weeks away. A City Planning Commission vote is expected to take place Wednesday, but the project also requires a City Council vote. Still, administration officials sounded a note of victory on Monday evening.

"We drove a hard but a fair bargain. We moved the needle significantly. We got more affordable housing, that will be permanently affordable. It will go into the ground in this calendar year," said Deputy Mayor for Housing and Economic Development Alicia Glen.

Mayor Bill de Blasio and Ms. Glen had staked much of their early credibility on development issues on getting the developer at the Domino site to deliver more low-cost housing. Ms. Glen was personally involved in negotiations on the deal.

Some neighborhood advocates and community leaders have questioned how big a win this ultimately is for the administration for a site that has a long and tortured history.

The site's prior owner, CPC Resources Inc., signed a nonbinding agreement in June 2010 to make 30% of the site's 2,000 units affordable if they received public subsidy—totaling about 660 units.

By then, the real-estate market was already in shambles and CPC in October 2012 sold the site to Two Trees for $185 million, considered by real-estate brokers to be a bargain price. Two Trees almost immediately set about making significant changes to the site, including adding 20 stories to some buildings, adding more office space and changing the open-space plan. Those changes remain part of the plan.

Two Trees is required to deliver 20% affordable housing in order to build taller buildings on the site, but the developer requested that office space be exempted from the calculation, meaning the project would have included 427,000 square feet of low-cost housing. But Two Trees officials said that they nonetheless planned to build 500,000 square feet of affordable housing.

Two Trees executives hoped to see the plan approved under Mayor Michael Bloomberg. Instead, it became the first major development project on which the Blasio administration would make its mark.

Ms. Glen and Carl Weisbrod, the new chairman of the City Planning Commission, said there are clear improvements over the old plan, including that this agreement will be binding. "Let's remember that the old plan was 3 years old and not one unit of housing was built," Mr. Weisbrod said.

Administration officials said they aimed to integrate community concerns as they worked with Two Trees, but local leaders weren't willing to sign off on the project yet. "We have a lot of work to do," said Antonio Reynoso, the city councilman who represents an area bordering the project and is expected to play an influential role in whether it gets approved. He cited concerns about the size of the affordable units, income levels of those who would live there and local hiring for the project.

"There are local issues regarding gentrification and displacement. This may add fuel to the fire," he said.

Write to Laura Kusisto at laura.kusisto@wsj.com