Urbanization is a major planning and policy concerning all spatial scales. This is due to more than half of the world's current population live in urban areas and overwhelming majority emerges in developing countries. The adoption of industrialization policy has led to rapid growth of urban population in the Asian countries including Malaysia. For an example, in Penang State, urban population growth causes cities to be spreading into the countryside, transforms non built-up areas into built-up areas and creates remarkable changes on the physical landscape as well as on the socio-economic condition of the local community. Thus, it is timely to investigate the impact of urban expansion at the peri-urban areas of Penang State on the local communities. This study gathers data using both quantitative and qualitative methods with 192 respondents, 12 in-depth interviews with senior citizens and village leaders living within areas experiencing intense urban development. The study finds that the local communities have more employment opportunities in both formal and informal sectors and also experience better livelihood generated from urban development. However, the expansion of built-up areas has put pressure on land and caused significant loss of agriculture land affecting the likelihood of the farming communities at the peri-urban area. Agriculture land size diminishes and becomes unprofitable. Consequently, farmers are willing to sell their land in the hope for quick return. The findings from this study show that appropriate planning policy needs to be devised in order to protect agriculture land at the peri-urban areas and ensure that the local communities benefit from the urban development.