Unlike many developed countries where sustainable development has been implemented at neighborhood scale, sustainable planning research and action has still been concentrated at the national level and little has focused on the neighborhood level in China. This issue was highlighted by the demand of facilitating sustainable development and significant transition of the socio-political context, which made the development of neighborhood planning even more urgent and challenging. Hence, this study aims to identify the major challenges, particularly related to the institutional aspects, for adopting neighborhood planning in the local community in China. Comprehensive literature review was employed to demonstrate the crucial position of institutional elements in facilitating sustainable neighborhood development and planning. A comparative study of the common characteristics for adopting neighborhood planning in four different countries was conducted. Based on the characters, the possible barriers hindering the practice of neighborhood planning in China were proposed and then validated with the in-depth expert interviews. The results show that there is little support from national policy and local governance, ambiguous legislation on community public management, as well as inadequate public participation and a weak sense of community. Corresponding policy implications and recommendations are included to provide insight for planners and decision makers to better utilize neighborhood planning to achieve sustainable urban development.