One of the only NSW South Coast forests spared in the Black Summer Bushfires will be bulldozed for housing after the federal environment minister approved the "zombie DA" under strict environmental conditions. 

A 20-hectare parcel at Manyana made up of endangered littoral rainforest will be cleared to make way for 153 homes.

The 16-year-old development application by Ozy Homes has been approved subject to 36 conditions under the Environment Protection and Biodiversity Conservation (EPBC) Act.

Environment Minister Tanya Plibersek's decision comes after a four-year battle led by the community to save the endangered forest following the 2019/20 Black Summer Bushfires.

Manyana Matters Environmental Association was established weeks after the last flames had been extinguished in March 2020 and Ozy Homes was set to begin clearing the land for subdivision.

Group founder Jorj Lowrey said the department's decision to compromise was a "no win" for everyone.

"Forests and ecosystems don't work when you go and put houses and cats and dogs and roads and drainage in the middle of them," she said.

"We're just quite shocked really and bitterly disappointed."

The Department of Climate Change, Energy, the Environment and Water has ordered the developer not to clear more than 1.25 hectares of grey-headed flying fox habitat.

It also told the company to plant 388 food trees for the species as an offset, and to cancel stage three of the development due to the littoral rainforest.

In a statement, a spokesperson for Ms Plibersek said the decision had to be made in accordance with the facts and the national environment law.

"The government will continue to consider each project on a case-by-case basis, under the law," the spokesperson said.

The statement said the department was only able to consider impacts to threatened species, not planning and development applications including "zombie DAs", which were the responsibility of the state government.

Manyana Matters secretary Jo Davey said there were an estimated 90 historical development consents along the south coast.

"Nobody sees it from a total perspective and unless we have proper changes in legislation we're going to have damage across the state," Ms Davey said.

The NSW Legislative assembly is currently examining the impact of historical development consents on the NSW planning system, development industry and property ownership through an inquiry.

On January 1, 2020, the Currowan megafire impinged upon Manyana and the neighbouring villages of Bendalong, North Bendalong and Cunjurong Point.

Around 3,000 people were trapped inside the village for 10 days without power and access to fresh food.

"When the fires were here there was deathly silence everywhere, except for this forest," said Ms Lowrey.

"It was a frenzy of life."

Around 95 per cent of nearby Conjola National Park was destroyed in the Corrowan megafire.

In 2020, the former federal government's environment minister Sussan Ley declared Ozy Home's Manyana project a "controlled action" under the Environment Protection and Biodiversity Conservation (EPBC) Act.

That meant it needed to be looked at under federal environment legislation due to its impact on threatened species.

The federal government called for more studies to be conducted into the potential impacts any land clearing could have on threatened and vulnerable species living in the area.

A decision was expected to be made in January this year but was deferred six times with Ms Plibersek's office pointing to a thorough analysis of fresh ecological surveys of the site.

Ms Lowrey said although she was gutted, the four-year fight showed for something.

"If nothing else it shows that we really made sure that they did give it the attention that it deserved," she said.