The warning comes after the Department of Infrastructure and Planning urged council to up the stakes at the site and increase both the density and the number of lots.

But community outrage and fears of overdevelopment drove councillors to reject the department's suggestion at Wednesday night's meeting.

As part of council's original housing strategy released five years ago, council claimed the commonwealth owned site could be developed to 1600 lots.

But years of lobbying by groups like the Mittagong Action Group have reduced that amount to 400- a figure most thought would be rubber-stamped by the department.

Cr Larry Whipper said any move to increase the lot yield would be an insult to the entire community.

"It's just horrendous and is like spitting in the face of the community," Cr Whipper said.

"This should be based on sustainability and it would put too much stress on infrastructure and issues like drainage and traffic.

"I think the department are a bit out of touch and if you throw in all the SEPP5 developments currently in front of us and we could be headed for an infrastructure disaster."

Councillors have agreed to reconvene the Renwick Sustainable Village committee, made up of community members, DOCS and Landcom to reconfirm the department's stand and write to the minister.

Jamila Maxwell from the Mittagong Action Group said any more than the agreed 400 lots would be a disaster for the area.

"Thousands of new residents will be driving down the narrow country roads and over the century-old narrow wooden bridges around the site destroying the peaceful nature of the area ofr existing residents," she said.

"We, the ratepayers, will pay for the shire services required by these new residents.

"If these proposals go ahead I hope the government enjoy the results- traffic choked towns ruined by huge suburban developments and bypassed by the tourists who are now the shire's major source of income."