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The merger plan was announced as part of a sweeping range of proposals aimed at creating lasting reform of the sector.
Other proposals, such as a new funding structure and reorganising the relationship between polytechnics and industry, have generally been welcomed.
However, the possible merger has met bitter opposition in the South, Invercargill Mayor Sir Tim Shadbolt calling it "devastating" and Otago Polytechnic chief executive Phil Ker saying it would negate all that the institution had achieved for the community over the past decade.
"As an example, would there be a Wildlife Hospital under the new system?" Mr Ker said.
"It's a moot point but my gut says probably not, because the new system is all about standardisation and efficiency.
"We want efficiency, but do we want standardisation, or so we want a structure which allows innovation to come through?
"It appears that we don't want that."
Otago Polytechnic was one of the country's best-performing training providers, which brought significant economic and social benefits to the region, Mr Ker said.
"The proposed model places much of this at risk ... our community can rest assured, Otago Polytechnic will be doing its utmost to preserve what many see as a regional treasure, and to persuade the minister to put in place a model more empowering of our institutions."
Sir Tim said Invercargill would be making "very strong objections" to try to retain the place of the Southern Institute of Technology in the community.
"It seems like we are being punished for being successful," he said.
"Watch out, we are coming. It's a very popular government that we are up against, but we've got to fight this."
SIT chief executive Penny Simmonds said it was hard to see a one centralised, large institute of technology for the whole of New Zealand being good for the regions.
She was concerned a centralised provider would not be as passionate about getting international, full fee paying students to SIT.
"I am concerned that this could back to haunt him [Mr Hipkins] in that the proposals may not deliver on what his intent is."
Meanwhile, students have called for their concerns to be at the centre of any reforms.
"What we need in New Zealand is a vocational education system that caters for students of a diverse background, and for communities with diverse needs," New Zealand Union of Students' Associations president James Ranstead said.
The reforms were heading in the right direction, but there was very little detail provided on students' role in them, he said.