Palmwoods residents have reacted with shock and anger over the clearing of a large parcel of land close to the town's centre.
The developer says the earthworks are fully approved and lawful.
The works have begun as part of construction of 55 townhouses — a development that was initially knocked back by Sunshine Coast Council in 2009.
The council decision was overturned by the Planning and Environment Court in 2011, but the 9.4-hectare site, off Palmwoods-Montville Road, had sat dormant since.
Resident Shannon Murphy said she could not believe her eyes when heavy machinery began arriving.
"It was what I considered a wetland and seeing the biodiversity, the amount of plants and bird life going through there, I was quite shaken that was ripped away so radically," Ms Murphy said.
Paul Stephenson lives nearby and said part of the site often flooded.
"Anyone who tried to pass over this bridge in the middle of town ... knows that it was flooded three times within the last nine months, for sometimes days at a time, and you couldn't proceed," Mr Stephenson said.
"This was all underwater only three months ago."
Kay Nixon has lived in Palmwoods for 28 years and runs a shop in town.
She said she had spoken to many residents who only became aware of the development when the works began.
"If people in this town had known it was coming ... there would have been an uprising," Ms Nixon said.
"We're aware of platypus being seen near there recently ... once you lose that environment for creatures you can't undo that."
Area to be 'fully rehabilitated'
Local councillor Winston Johnston was overseas but sent an email to residents saying he was "as amazed as everyone else that the work is being carried out".
He wrote that the approval could not be rescinded because it had been granted by the Planning and Environment Court.
In a statement, developer NeuBau Group said it understood "concerns being raised by some of the community".
"We are following the relevant approval by the book and everything that is occurring on site is lawful," the statement read.
"The current extent of works being observed are largely the flood mitigation works component ... and include compensatory earthworks to offset some filling that is approved for the south-eastern part of the property.
"The relevant approvals require this area that is currently being worked to be fully rehabilitated once the bulk earthworks are complete."
The developer said the townhouses would be built in the south-eastern part of the property and cover "less than 18 per cent of the total area".
"We ask that the community be patient until the works are complete, at which point the nature of the development will be much clearer, including the flood mitigation measures."
Small towns feel the squeeze
Mr Stephenson said the development was one of several new housing projects around town "eroding" green space, with residents having to sacrifice their way of life for newcomers — many of whom were from interstate.
"I think the bigger issue we've got is over development in the hinterland and across the Sunshine Coast more generally," he said.
"We're quite nice little communities here ... people living sustainable lifestyles ... and we don't want to see this kind of model replicated across the entire coast.
"Developers aren't doing this to solve the housing crisis ... they're doing it for private profit."
Fellow Palmwoods resident Hilary Tilton said the growth was affecting the feel of the town, with longtime renters being forced to move further afield.
"It's the sort of place where it's very welcoming, very nice ... I'm not saying that people coming in are not going to be the same but the whole thing is changing rapidly.
"And it's not going to be housing for poor people ... the area is getting increasingly, crazily expensive ... it's going to be housing for well-heeled people ... it's very disappointing."
Sunshine Coast Council is in the process of developing a new planning scheme, and has been inviting residents to have their say via its website.
