The council is proposing to zone a strip of land along the fault line as a "fault rupture avoidance zone" where no new buildings will be allowed and existing buildings cannot be expanded.
The move affects at least 30 Franz Josef properties - including a supermarket and the Allied Petroleum service station.
A South Island senior policy planner who did not want to be named described the Westland council's move as "quite drastic" and "bold".
However, the planner did not rule out the possibility other local authorities might consider similar action.
"It is quite extreme, but I would suggest potentially it might be the way that local authorities might need to head in future, just in terms of the whole reaction to Christchurch.
"And, I think there's a general drive from the Government to elevate the need to take account of natural hazards."
The planner considered there were some similarities between the Westland council's proposed restrictions and restraints imposed on North Island land prone to coastal erosion.
"I guess that might be a slightly different hazard, in that coastal hazards you can actually see happening and you can measure them."
Owners of Franz Josef properties within the proposed avoidance zone have talked of moving their homes and businesses to another part of the town and raised the issue of who would pay.
Westland Mayor Maureen Pugh told the Otago Daily Times yesterday she considered the council would not be liable for the cost.
"It's not going to be [the] council and the Government is probably not going to set that precedent."
Mrs Pugh considered the council would have been "very liable" if it had received the scientific information on the fault line and done nothing.
Council planning manager Richard Simpson also did not consider the council would be liable, but added that was for the courts to determine.
"We've got some clever people who worked on the plan change and it's been reviewed by some other people and we think it is the appropriate way to proceed."
Mrs Pugh said the council did not want to destroy "one of the prime destinations in our district for tourism" and had therefore allowed businesses to keep operating in the avoidance zone.
The restrictions on development were to ensure growth did not expand "the risk in terms of numbers of people on site".
She said the council was "caught between a rock and a hard place" balancing the earthquake risk against the "huge amount of investment and infrastructure on the fault line".
Correction: The Westland council's plan is to rezone land along the Alpine fault line in Franz Josef to stop new development there, not to shift part of the town as published in yesterday's Otago Daily Times. The idea of moving homes and businesses came from residents concerned the rezoning would create a "ghetto-like" area. The error occurred in the editing process.
The owner of the Allied Petroleum service station straddling the Alpine fault line in Franz Josef, Neil Matchett, of Wanaka, says he is concerned about a Westland District Council plan change proposal which puts his business in a "fault rupture avoidance zone", where future development will be limited to gardens and car parking.
Mr Matchett has owned the service station in one of Franz Josef's prime main-street locations for 12 years and says he is considering making a submission on the plan change.
"If what they are saying goes through, it's pretty serious."
Suggestions businesses be relocated elsewhere in the township was one option, he said.
