Kiama MP Gareth Ward announced on Friday that the NSW Government had awarded a $6.5 million grant to upgrade the site, run by the Reflections Holiday Parks group which will invest $4.4 million into the project.

As well as 15 luxury cabins and the function centre, the redevelopment would include 53 full-serviced campsites, a new playground, walking trails and outdoor recreational equipment.

Mr Ward said the funding would help "create a signature tourism attraction for the community".

However Shellharbour Mayor Marianne Saliba said there had been little community consultation, and she was only informed of the plan on the weekend.

"I don't have a problem with beautification and improvements being undertaken at Killalea," she said. "I do have a problem when users, local operators and Aboriginal people are not consulted about it.

"The feedback since the announcement to me has been that no-one is aware of this plan.

"Council officers were asked to provide a letter of support for the application for funding - however that support was for investigating an alternate access into Killalea and improvements to the camping area. We had no idea of the scale of the project."

Cr Saliba had concerns about the impact of the plan on the environment, and the many community members who frequented the site for sport and recreation, and events such as Sculptures at Killalea.

"For instance where will they position the function centre - where weddings, birthday parties, all sorts of events will be held," she said.

"You can't put it within the camping ground - people don't go to stay at Killalea to be surrounded by parties, they go to get back to nature.

"If it sits on the top section it will have a huge impact on the activities there where there's a kiosk and other public facilities."

However Reflections Holiday Parks CEO Steve Edmonds said some discussions had been held with "key stakeholders", and now the grant had been successful consultation would begin in earnest.

"We know there's significant Aboriginal history and cultural aspects of Killalea reserve, as well as its importance as a surfing reserve," he said.

"So we want to retain those aspects and get stakeholders from those groups involved in the design process."

Mr Edmonds said the proposed cabins would have an "environmentally sensitive design" and promised that any new construction would not "block views".

"I think some of the mistakes of the past have been proposing buildings in key view corridors," he said.

"But we know those beautiful views are one of the drawcards of the site and we really want to preserve them."

Mr Edmonds said an alternate access road was being investigated, to ease traffic congestion for residents and to enable easier access for visitors.

Traffic congestion was one of the concerns of residents who took to the Mercury's Facebook page to vent their frustrations over the plan. Many were concerned that over development would ruin the natural asset.

"Part of the attraction of this place is that it is an oasis of unspoilt natural beauty in the middle of suburbia where you can feel like you are away from development," Jennifer Chappell wrote.

Rob Davies added: "Just leave it alone. It's meant to be a national surfing reserve, and you'd like to think the landscape and surrounding area will remain unchanged".

It's not the first time the site has been earmarked for a tourism development.

In 2007 the Save Killalea Alliance was formed to fight plans for a $35 million development that would have seen 106 accommodation lodges built on the site.

In 2010 the group celebrated when the plan was scrapped, and group co-ordinator Sonya McKay this week told the Mercury she too had been unaware of the new plans.

"After fighting for the preservation of Killalea for so long it is a shock to encounter what appears to be a significant project being pursued without genuine, or any, community consultation," she said.

"There is an apprehension and a lack of trust with developing a pristine area such as Killalea, particularly when there have been no plans available to consult with.

"Right now we are on the cusp of a climate crisis that threatens coastal communities and environments and calls for an urgency for action that aims to protect them.

"While the community sits back waiting for climate action it appears that money is being poured into the symptoms rather than causes and real solutions."

The project was one of 10 regional tourism projects to receive a share of $62 million from the Regional Growth - Environment and Tourism Fund.

In announcing the funding, Mr Ward said: "The project aims to establish Reflections Killalea Reserve as an iconic NSW tourism destination to increase visitation and extend length of stay from interstate and international visitors," he said.

Mr Edmonds said once the consultation process was complete, plans would be finalised and designs drawn up. He expected construction to start late next year.

Cr Saliba added: "They say they're now going to do a consultation process - but it's quite clear they've already decided what's going there".