The site, which was gifted to the Education Department by the community in 1926, is being put up for sale by the shire.

Clunes resident John Sayers said the proceeds from the sale should be earmarked for Clunes, but at its ordinary meeting last week the council decided instead to keep the money available for projects across the shire.

Mr Sayers said there were so many things that needed to be done in Clunes he couldn't see the logic in the decision.

"Virtually everyone I've spoken to in the town are all unanimous that the money should come back to Clunes," he said.

"It's land that was designated for the benefit of Clunes."

The land was gifted to the Education Department in 1926 by the then Borough of Clunes to enable the school to establish a plantation.

In 1999, after the plantation was harvested, the Education Department decided to "return the gift" to the community and it was transferred back to council ownership in 2002.

Mr Sayers said Clunes was crying out for funding for a number of important projects, including the need for a footpath along the road that the old plantation site was on.

"A lot of primary school children have to walk along this road before and after school. Because there's no footpath they have to walk on the road," he said.

The issue generated debate at the latest ordinary council meeting, when Cr Tim Hayes suggested the benefits of the sale should remain in Clunes.

But most councillors said it wasn't a fair way to decide funding and established a precedent of "you go and sell some assets and if you don't have any assets we won't fix it".

Cr Hayes told The Advocate he accepted the decision but he didn't agree with it.

"If an asset in a certain part of the shire is to be sold my view is, as a matter of principle, that the proceeds should be used to provide assets in that same area," he said.

Cr Hayes said submissions from the public had been invited before the meeting but none were received.