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Pigeon Island, in Lake Wakatipu, is a protected sanctuary for flora and fauna and one of the few places where pockets of rata could still be found.
Mr Bailey said the council was contacted by staff of Rippled Earth Kayaks who noticed a "freshly chainsawed rata" on the island during a trip.
"These are big sections of timber that would have taken some transporting by boat," Mr Bailey said.
The council was keen to hear from anyone with information on the theft of the rata.
Mr Bailey said he was disgusted anyone would destroy healthy trees and make off with the wood.
"It's a real insult to the community and in particular the hundreds of people that have volunteered countless hours to plant trees on the island," Mr Bailey said.
Taking anything from Pigeon Island was illegal and subject to prosecution, he said.
Mr Bailey said a close watch would now be kept on the area to ensure there was no further damage.