Work was halted at Easter Langlee in Galashiels, Selkirkshire, after the gases were discovered by scientists.
The findings were submitted in a report to Scottish Borders Council, who stopped work immediately.
High levels of carbon dioxide, which can cause drowsiness and headaches, was found on the 2nd phase of the development, which is located beside a major landfill site. Methane was also discovered. Although it is not toxic, it is highly flammable.
Concern is now growing among residents who already live in the development. 118 homes are currently occupied by householders, which were developed during the 1st phase of the project 4 years ago.
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A further 396 properties were due to be built in the 2nd phase.
A spokesman for the council said: "A report was submitted to Scottish Borders Council earlier this year by the developer which indicated elevated levels of methane and carbon dioxide gas around the northern boundary of phase 2 of the site.
"The council's environmental health officers issued a response to this report setting out their advice."
The spokesman also emphasised that no homes needed to be removed at this time.
Jim Kirkpatrick, Managing Director at Persimmon, said: "Persimmon Homes were recently required to provide the Scottish Borders council with a contamination report in order to pass suspensive planning conditions for phase two at Easter Langlee.
"This report highlighted elevated levels of natural gases, methane and carbon dioxide, around the northern boundary of the site. As a result we have been asked to provide another report which identifies the areas affected and details any mitigation work proposed to deal with this issue."
Mr Kirkpatrick went further, stating that the vast majority of buildings, including those currently under construction, would remain unaffected.
(LM/CD)
