The Clutha District Council proposed two lease amendments to the popular holiday spot - extending the lease term from 2016 to 2029, and extending the lease area from 8950m2 to 14,100m2.
The Pounawea Camping Ground is on Department of Conservation (Doc) land next to the bush-clad Pounawea Scenic Reserve.
The camping ground has remnants of native bush dotted around the site and is located on the outskirts of the Pounawea township in the Catlins, with the beach and Catlins River estuary to the east.
The proposal attracted 59 submissions including a petition with 20 signatures from Pounawea residents - 36 opposed and 23 in support.
Lessee Glenn Maxwell has run the camp since 2006, and on Thursday told the council he had turned around the camp, making it profitable.
He said most of the camp's patronage came from Clutha, Gore and Invercargill, with more space needed in order to accommodate tourists.
''If the tourists aren't spending the money, the cafes will close.
''It's a great little town and it has the chance to get better ... to be a town like Lawrence, or even better.''
The council had considered the lease amendments in 2009, agreeing to them subject to the ''satisfactory resolution'' of an outstanding greywater discharge issue from the camping ground and approval from Doc.
A new sewage system for the camping ground is being commissioned, which the council said would resolve the outstanding greywater issue.
The council unanimously voted to decline the ground extension, but approved the lease term by three extra five-year extensions to 2029.
Councillor Jo Lowrey made a motion - which was amended twice - that the council agree an area cleared by the lessee be isolated from use by vehicles, left clear and managed by the council for use as recreational areas, excluding camping.
The motion was carried by eight votes to five with Crs Hamish Anderson, Bruce Graham, Hilary McNab, Jo Lowrey, Gaynor Finch, Jeff McKenzie, Stewart Cowie, and John Cochrane for, and Crs Geoff Blackmore, Ken Payne, Bruce Vollweiler, Mary Johnstone, and Michelle Kennedy against.
After the meeting, Mr Maxwell said that while he was disappointed, he supported the council's decision.
''It's unfortunate for the campers staying who don't get more room. All we want is a better experience for our campers ... We want to see the Catlins go forward.''
The decisions will be forwarded to Doc for consideration.
