It is breakfast time outside the Grotta Azzurra on the corner of Mulberry and Broome. At an outside table Nick Bari nurses a cigar and reads the paper.

All in black, Camile Garibaldi, the restaurant's manager, chats on the pavement with a friend before returning inside to see to customers.

All is well this morning in Little Italy. Or so it seems. Up and down Mulberry St, the main thoroughfare where the tourists roam and the restaurants hawk their focaccia and linguine con le vongole, banners on lampposts welcome first-timers to "Historic Little Italy".

While small enclaves of ethnic identity pepper the street-maps of New York, few generate more affection than Little Italy. Its history as home to thousands of Italian immigrant families and - lest we forget - as stamping ground for the city's growling Mafia goons, still means it features high on the itineraries of Manhattan visitors.

But these days the neighbourhood finds itself in uncharacteristically defensive mode.

First came word from the US Census Bureau that Little Italy was, well, barely Italian any more, which prompted a "Little Italy, Littler" headline in the New York Times. That was followed by a bid by some non-Italian boutique owners to have the San Gennaro festival that crowds Mulberry St each September curtailed on the grounds that it was hurting their businesses.

Of the 8600 residents interviewed in the two-dozen-square block area of Lower Manhattan that might still be deemed Little Italy - determining its borders is another area of contention - not one was actually born in Italy. And descendants of immigrants from Italy (Italian-Americans) made up only 5 per cent of the area's population.

It is a stark demographic evaporation which has been going on for decades. In 2000, the US Census Bureau found 44 Italian-born people in the neighbourhood and a 6 per cent share for Italian-Americans. Back in 1950, there were 10,000 New Yorkers residing in the area and nearly half were considered Italian-Americans.

"I wasn't shocked and I don't think anyone else should have been," notes Robert Alleva, 58, who runs the venerable Alleva Dairy on Mulberry and Grand, which was first opened by his great-grandfather, an immigrant from a village close to Naples, in 1892. His white-tiled shop is heavy with the soft and seductive smell of fresh mozzarella - it is the oldest maker of the cheese in America - as well as giant salamis hung on hooks and other Italian fare.

"It's really all commercial now," Alleva, in his white dairyman's coat, says. "As far as Italian immigrants living here goes, that is all history. It's too expensive to live here."

With Chinatown crowding in from the south and east, the geography of Little Italy has also been shrinking. Last year, the National Parks Service designated Chinatown and Little Italy in Manhattan as a historic district, without bothering to distinguish between them.

But the encroachments have not been as dramatic as some people think, says Alleva. "Maybe we have lost a block on that side and another on the other," he says, pointing in different directions down Grand, "but for the rest it's pretty much the same as 30 years ago."

With his newspaper and coffee, Nick Bari, who recently took over Benito One, a modest looking but highly rated restaurant on Mulberry, also says there is no concealing the changes. It is not just the Italian-Americans who have gone but also most of the family butchers and grocery shops that fed them, and many of the old social hang-outs. "Real estate is too expensive," he says bluntly.

Next to Benito One is a shop with a blue awning which says Aqua Star Pet Shop in Chinese characters. Nowadays, anyone trying to capture the Italian feel of Mulberry St with their camera will have a difficult time editing out the Chinese intrusions. But no one should say that Little Italy is endangered, says Bari.

Partly it is the tourists who promise to keep it alive. It is partly the fascination with the mythology of the Mafia which keeps them coming. The old Ravenite Social Club on Mulberry, a former favourite of the Gambino family, is now a handbag and shoe shop.

But, as Garibaldi at the Grotta Azzurra points out, the neighbourhood also fills at weekends and especially during the San Gennaro festival with Italian-Americans coming back in from the suburbs to get back in touch with the old neighbourhood and eat food like grandma made.

But even diehards like Garibaldi - who arrived here with his parents from Sicily when he was 8 - cannot deny that Little Italy is not quite what it used to be.

He now lives on the Upper East Side, because he says if he lived above the shop his work day would never end.

He has the simplest explanation for why Little Italy, with its ever spiralling rents and tiny apartments, no longer belongs to Italians. "We all came from southern Italy. We like to have a lot of kids." And kids mean suburbs.