The proposal at issue was a plan to subdivide a 1.35 hectare lot on the Koroit-Port Fairy Road into two smaller lots and build a dwelling on the newly created vacant lot.

Moyne Shire acting director of economic development and planning Darby Lee said council officers had assessed the application and recommended it be refused.

The main issue from the council's perspective was that the land sat within the farming zone, which the Moyne Planning Scheme said should not be subdivided because it would end up fragmenting farmland into impractically small parcels.

"(The application ) is not consistent with the purpose and guidelines of the farming zone requirements... (and) it isn't consistent with the planning policy framework, which protects against the fragmentation of productive agricultural land," Mr Lee said.

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Council officers also said granting a permit would set a precedent for carving off sections of agricultural land for residential use, which would "cause significant future land use conflicts" in the shire.

Planning consultant Alistair Davies, speaking on behalf of the applicants, said the land in question didn't qualify as productive agricultural land.

"We've got houses immediately to the north and immediately to the south. We're effectively filling a small gap between existing dwellings.

"It's not land that practically is ever going to be used for farming and we're not going to impact on the expansion or operation of existing farms," Mr Davies said.

He said if the land were out in a paddock next to a large farm "it would be a very different story".

When mayor Ian Smith said he was "concerned about setting a precedent... that land can be subdivided under the (current two hectare) limit in the farming zone", Mr Davies said he didn't think the permit would be relevant to future applications.

"These planning decisions need to be made on their merits and consideration given to the context of each site," he said.

While Cr Smith wasn't convinced, his colleagues were, voting six to one in favour of granting a permit.

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