The proposal, put forward by Port Stephens Council, will see seven parcels of residential land sold.

The blocks are located in Aliceton Reserve, facing Johnson Ave.

Mayor of Port Stephens, Craig Baumann, said the land was zoned 2(a) residential.

"The land in question is a very small part of Aliceton Reserve that is zoned residential.

"Council is scraping for funds for Karuah, so if we sub divide the blocks and sell them off this will help council to upgrade the park and facilities in the area," Cr Baumann said.

Karuah Progress Association president, Fred McInerney, told the NOTA he believed there was widespread community opposition to the proposal, and that the Progress Association was exploring ways to convince council to look to other ideas to raise funds.

"It's not as if there is a shortage of land available for residential development in Karuah," Mr McInerney said.

"We, the community, own the land, and council manages that land on our behalf and if they think they are going to sell it off against our wishes they have a fight on their hands," he said.

Cr Baumann said he had met with representatives from the Karuah Progress Association regarding the matter but explained the proposal hadn't actually been before council yet.

"It is still in the initial planning stages," he said.

"Council is trying to do all they can for the Karuah area and we believe the Aliceton Reserve needs some tidying up," he said.