This article presents a concept and theoretical specification for a system dynamics based framework for sustainable development analysis of local governments. Although many countries in the world aspire to the principles of sustainable development, there exists a relatively small number of theoretical studies and practical results in the area of simulation modelling of sustainable development. The proposed modelling framework is based on the concept of sustainable regional development as an unending process defined neither by fixed goals nor by specific means of achieving them. A sustainable region demands a mutual balance among economic, social, political and naturally environmental development. The system dynamics framework is considered as a useful tool in assisting decion-makers in development planning allowing to evaluate alternative scenarios and planning options.