It will be the first time cabins, which are expected to be in position by March next year, have been included in the park's layout.

The favoured position for the cabins at this stage will be the northern end of the park, in what is normally powered sites.

The cabins are being built for visiting short-stay workers, with the state government and council keen to keep the workers staying in the town, while not flooding an already crowded rental market.

While the cabins will encourage workers to stay in the town, they could have an impact on tourism visitation to Koroit.

The caravan park has 24 powered sites and 31 unpowered, all of which are filled by visitors in peak periods such as the Lake School of Celtic Music, Song and Dance, the Koroit Irish Festival and the Port Fairy Folk Festival weekend.

The powered sites are also usually all occupied during the Christmas and Easter holiday periods.

Moyne Shire director of economic development and planning Brett Davis said there was some room to move and possible flexibility to counter this issue.

"While the primary purpose of these new cabins is to house workers, if the cabins were to be vacant, particularly at peak visitor times such as Christmas or the Irish Festival, we would consider short-term rentals at those times," Mr Davis said.

As the number and size of events in Koroit, the investment planned for improvements at Tower Hill and the increased interest in the town as a visitor destination continues to grow, the pressure on the lack of visitor accommodation also builds.

Outside of the caravan park the town has bed and breakfast and hotel accommodation, but does not have any motels or similar larger venues for big numbers of people to stay.

The prefabricated cabins at the council-owned park will be similar to those in place at Gardens Caravan Park in Port Fairy, and will be fully self-contained.

The state government has provided funding of $465,000 for the project, with a further $160,000 coming from Moyne.

"Attracting workers to Moyne Shire is a high priority for council," Mr Davis said.

"Given the current housing shortage being experienced, we welcome the announcement to invest into workers' accommodation.

"Council has been working with the state advocating for ways in which to alleviate the current housing shortage, particularly for workers."

Mr Davis said the new cabins would help find and keep skilled workers and bring wider economic benefit to the community.

When asked whether the existing, ageing amenities block would be upgraded, Mr Davis said it would not be at this stage.

"Further upgrades to the Koroit Caravan Park and surrounds are not within the scope of this particular project," he said.

Both the Koroit Tower Hill and Killarney parks are closed for winter maintenance. Moyne is currently advertising for new caretakers to oversee the operation of both parks.