Residents of Sydney’s Green Square can look forward to an innovative underground library and outdoor community plaza designed by two UNSW architecture graduates.

Felicity Stewart and Matthias Hollenstein, who both graduated in 2009, beat a field of well-establshed Australian and international firms to win the City of Sydney 2013 Design Excellence competition for the $40 million project at Australia’s largest urban development.

Their unusual concept redefines traditional perceptions of a library, with a combination of below ground buildings and outdoor bookshelves in the plaza. The library will form the centrepiece of the Green Square town centre and serve the suburbs of Rosebery, Zetland, Beaconsfield, Waterloo and Alexandria.

“The nicest part is that this is a concept we are absolutely passionate about because it puts people above everything,” Felicity told the Sydney Morning Herald.

The library will include garden storytelling, rolling hills and a sunken garden for reading and relaxing. It also includes an amphitheatre, music rooms, a water play zone and open spaces for festivals.

Renowned architect Glenn Murcutt, member of the competiton jury, described the design as a "superb solution".

"It's going to be a wonderful place for the people of Green Square to be," said Murcutt, a professor at UNSW's Faculty of Built Environment.

The project is part of the $8 billion Green Square scheme to transform the southern parts of the area into a vibrant and sustainable urban environment.

The architects will work with the City of Sydney to refine the design and plan for construction in 2017.