Kilkenny County Council is threatening to seek an injunction to prevent a developer from allowing any more houses to be occupied on an estate which has not been connected to the public sewerage system.
At least 60 houses have already been occupied over the last two years on the Roseleigh estate in the village of Mooncoin.
A spokesman for the council said the development of the 111-house estate was approved by An Bord Pleanála on condition that no house would be occupied until the sewage plant in the village had been upgraded and connected to the estate and a new surface-water drainage system was completed and commissioned.
The developer, Stephen Greene, of Killinaspick Developments, said he had already spent "the guts of €1 million" to upgrade the village sewage treatment plant which was "ready to operate". He said he "cannot understand" why the council did not connect the estate to the mains.
He said yesterday that "Kilkenny County Council should come down and dig up the road and connect the waste tank to the main sewerage pipe which is only 10ft away". He claimed "the problem could be solved in 24 hours".
However the council says no house should be occupied, that it has not received the relevant drawings of the estate which would enable its engineers to connect the pipes and it is still awaiting a design proposal for the surface-water drainage system.
In the meantime waste from the houses was being collected in a "holding tank" which was prone to overflowing following heavy rain.
This week the Green Party claimed "sewage" was being allowed "to run down an Irish street".
Mr Greene accepts that flash floods caused an overflow of "foul water", but denies that raw sewage had flowed into the road.
Villagers in Mooncoin have complained about the unpleasant smell, and Fine Gael councillor Pat Dunphy says he is "concerned for the villagers' health".
Mr Greene claims the council had agreed that the holding tank was acceptable as a temporary solution.
Local politicians have also asked why solicitors have been allowing clients to sign contracts to buy houses when their occupancy is in breach of planning permission.
On Thursday, following widespread calls for action by politicians of all parties in Kilkenny, the council took legal advice and wrote to Killinaspick Developments to request that the developer provide an undertaking that no further houses would be occupied.
Yesterday residents of Mooncoin who did not wish to be named praised Mr Greene, whom they said had brought "jobs, money and prosperity" to the village of about 800 people.
Mr Greene has also built a pub, The Rose of Mooncoin, and four retail outlets next to the estate.
He hopes these will be occupied by "a pharmacy, a Chinese takeaway, a dry cleaner's and a bookmaker". He says these are "badly needed" and the council is preventing them from opening.
At close of business last night, Kilkenny County Council confirmed that it had received a reply from the developer which was "unsatisfactory". It would be reviewing the matter with its legal advisers on Monday.
