Dennis Argall described the revelation as an act of “gross incompetence beyond the achievements of Shellharbour Council”.

“It is also wilful misconduct, on an extraordinary scale,” Mr Argall said.

“Mr Watson and his team knew last year the deal for the gateway hotel with Huscorp was in trouble because the land was community land and needed reclassifying. But they chose to go on without changing the land zoning in the belief they could get past the law unnoticed.”

Decisions on the issue were made in October 2007 by the Property Steering Committee chaired by Greg Watson, Mr Argall said, and as the decision was to make no change, nothing was put to a council meeting.

“Such misconduct will cost us all, as ratepayers, a lot of money.

“The Department of Local Government needs to widen its investigation and inquiry into this foolish behaviour by the mayor and the council majority.”

Shoalhaven Action Campaign endorsed candidate John Fergusson said it seemed council was lurching from one disaster to another.

“This is the latest in a long list of problems the department has identified with Shoalhaven City Council.”

Mr Fergusson said he was concerned by council’s acceptance of the proposal from Huscorp after the expression of interest process had closed.

“This is similar to favourable treatment Huscorp received in Huskisson with the sale of the public carpark at well below market value and support for waterfront developments that do not comply with planning policies and standards.

“Either there was gross incompetence or an attempt to circumvent process.

“The problems should have been obvious and again reflect a consistent pattern of avoiding engagement with the community in an open and consultative process. It’s easier to ignore community views if you don’t ask for them.”

Fellow Shoalhaven Action Campaign mayoral candidate Patricia Mason said continuing controversy over council’s public land sales showed it was time for a new approach to any development proposals on public land.

“No one can believe that selling public land in secret deals at discounted prices can be considered effective management,” Ms Mason said.

“One of the principles under which candidates will be standing for election with the support of the Shoalhaven Action Campaign is directly related to the sale of public assets.

“Details of any proposals for the sale of public assets, including air space, will be widely and freely available in sufficient time for considered public participation before decisions are made about sale and development.

“It won’t cost any more, it won’t slow developments down. In fact by providing a level playing field it will support economic development and job creation.”