Another Implementation of this that could serve as a campaign model is Chaosium's classic Runequest campaign set: Pavis+Big Rubble.
Pavis is a small Jerusalem-like city on frontier edge of the Lunar Empire. It serves as a home base for the PCs, as well as a source of city adventures. It's full of warring factions. The Lunar Governor wants a flashy success that he can report to the Capital so he can return home (since Pavis is as bad a posting for him, as Jerusalem was for Pontius Pilate). There are local rebels who want to kick out the Imperial Troops, and declare the place a free city state. There are criminals, merchant houses, desert tribes, Barbarian mercenaries who hate the Lunars for conquering their homeland (etc).
Then there's the "Big Rubble", the vast ruins of an ancient city built by giants, surrounded by enormous, near-unscalable walls, containing the remains of a fallen "kaiju-like" golem. Outlaws, exiles, mythical beasts, and strange phenomena populate the ruins, but are mostly contained within the walls. Pavis huddles next to the Big Rubble, but a gate manned by Lunars offers access to the ruins. PCs can purchase permits from the Lunars authorizing entry into the Big Rubble, with the stipulation that they have to pay a tax on all treasure they find. The Lunars are also interested in any magical artifacts the PCs recover. Of course, the PCs could find other ways in...
Finally there's the mythical "River of Cradles" that runs between Pavis and Big Rubble. It's a major trade route offering access to the rest of the frontier. When one of the legendary "Cradles", a huge ark-like vessel, is spotted coming down the river, rebels, Lunars, and bandits alike all race to board and loot it first, only to find that it has powerful magical defenses.
Even if I didn't use this setting, the basic ideas in it would work well for running Phlan as a TTRPG. Have warring city factions in a New City, next to the ruins of the Old City, which serves as an urban dungeon. Different factions offer faction play, and can serve as patrons hiring the players to go on specific missions into the ruins. Make the ruins hard to get in, and for monsters to get out of the Old City ruins, otherwise they would overrun Phlan. Very dangerous flying monsters should be dormant for the same reason -- it would be too dangerous to resettle New Phlan. PCs can use the new city as a home base to explore the ruins, or to range out into the wilderness to other adventuring sites.