In a unanimous vote at Monday's Warrnambool City Council meeting, Cr Richard Ziegeler's alternate motion was passed which rejected a permit to subdivide the land into nine lots.

Two of the lots would remain as The Freckled Duck bakery and the other seven created for future housing. The bakery owners rent their store and are not involved with development plans.

The plan would also involve the demolition of outbuildings, including sheds, and adding a single accessway for vehicles to enter and exit the new dwellings.

Cr Ziegeler said the proposed density of the build was not in line with Allansford's "existing neighbourhood character" and would impact the property's drainage and traffic management.

"The pattern of subdivision does not lead to an appropriate spacing of buildings as per the decision guidelines of the township zone," he said.

"It would complicate the traffic and parking on the parade, and create all kinds of difficulties not only for the existing residents of the township but also for the proposed new residents of the development."

Cr Ziegeler said he was not opposed to a subdivision plan for the site, but it would need to be a reduced version of the current proposal.

Cr Angie Paspaliaris seconded the alternate motion and said the proposal would compound existing pedestrian and traffic issues at the site.

"It's a likely reality that each dwelling will have two cars. That could amount to 14 cars entering and exiting what I see to be a narrow, poor sited driveway," she said.

"There are pre-existing parking, pedestrian and traffic management issues in the vicinity of this proposal... not to mention the major drainage issues."

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Cr Ben Blain said he had concerns about emergency vehicle and garbage collection access to the subdivision.

"Especially with seven lots, that will be 28 bins with 14 going out every week which is going to create an issue along Ziegler Parade," he said.

Cr Debbie Arnott said she had issues with the plan's building density and pedestrian safety, particularly for school children in the area.

"It does not align with Allansford at all. Most of the homes in Allansford are built on bigger blocks," she said.

"There are many school children that walk to the school [and] there's no footpath there."

Cr Max Taylor said the permit application's proposal for parallel parking to be introduced in front of the bakery was a concern for him. "It's only going to further enhance the traffic chaos there," he said.

Mayor Vicki Jellie concurred with her fellow councillors and said density and traffic safety were her points of concern.

"It's dangerous [for] children walking past to school and people parking out in front of the bakery," she said.

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