Save Britain's Heritage (SAVE) has mounted a judicial review to try to safeguard the Welsh Presbyterian chapel, in Springfield Road, Klondyke.
It has been earmarked for demolition by Sefton Metropolitan Borough Council as part of a wider housing market renewal (HMR) project.
SAVE is challenging a decision made by communities secretary Eric Pickles in December last year not to require an environmental impact assessment (EIA) before the chapel's demolition could go ahead.
The case comes as SAVE’s lawyers are in the process of negotiating with the government over a judicial review of former housing minister Shapps' decision to grant councils in HMR areas funding that would enable the demolition of around 5,000 homes.
Representing SAVE, barrister Richard Harwood from chambers 39 Essex St, said the campaign group had been at the forefront of opposition to the previous government's now scrapped HMR pathfinder scheme, which saw swathes of terraced housing demolished in northern cities.
He added: "The scheme which was intended to regenerate housing in poorer areas has involved the demolition of entire blocks of streets.
"The present government scrapped the pathfinder programme, yet Sefton Council has been determined to continue with demolition in the Klondyke and elsewhere."
SAVE say the landmark chapel is a key part of local history and, if preserved, could become a community centre and an important hub for the neighbourhood.
The council's initial plans for the area involved demolition of housing but retention of the chapel, but later proposals included levelling the chapel to create an open space as part of an enlarged Aspinall's Field, the court heard.
As local houses were cleared of residents, the local Presbyterian congregation diminished and the chapel held its last service in March 2008. It was later acquired by the council and its roof has since been badly damaged by fire.
Mr Harwood described as "incredible" Sefton's contention that the reason for levelling the chapel is its derelict condition, rather than as part of its renewal strategy for the area.
David Forsdick of Landmark Chambers, representing the Department of Communities and Local Government, denied that there had been "salami slicing" of the overall project so that each of its individual parts would come beneath the threshold where an EIA would be required.
Describing the chapel as "derelict", he said it represents a health and safety risk, having been subjected to "numerous arson attacks" and with a roof that has now partially collapsed.
Mr Justice Stadlen is expected to reserve his judgment on the case until a later date.