Councillors determined in closed session at Wednesday's meeting that Berrima Diesel did not have the required consent to continue operating in its current form.

General manager Jason Gordon said that although the business did have a letter of consent from about 1984, it had since expanded beyond what was set out in the existing use rights.

"From a legal point of view, we can't find any document, from our files or theirs, that says the business can operate legitimately the way it has been," he said.

"We understand it's a well-established business that has been operating out there for the past 20-plus years with an excellent reputation.

"But there's been a complaint from a neighbour about how they've been operating and council investigated that and discovered the problem.

"Council is sympathetic towards them, but it can't make their operation legal.

"However, if they choose to take the matter to the Land and Environment Court, then that court could make it legal as it has got much more discretionary powers than what we have."

There has been an auto workshop on the site going back to the 1960s. Reinhard Leimroth took over in the early 1980s and established Berrima Diesel.

Mr Leimroth registered the workshop in 1990 after state regulations changed and the council sent back a letter, which he holds today.

"We're certainly going to take them to court," he said. "The business has built itself up over the past 20-odd years based on that letter.

"How can somebody give you permission to do something and then take it back 25 years later and say 'we made a mistake'? Why would we invest money in something and build it up to a very good standard without it being legal?"

The company is well-known among Australia's four-wheel drive community for its specialist services and has become one of the top diesel service businesses in Australia.

Mr Leimroth said it would be a big loss to the village if the company was forced to close.

"If Berrima Diesel left the village, I can tell you it would suffer a bit because we bring a lot of customers into town," he said.

"Sixty per cent of our clients come from interstate and spend two or three days in town. The motel does very well out of us, as do the shops and cafes."

Mr Leimroth said the business would continue to operate as normal for the time being.

He has 12 months to resolve the matter in court or close down.