The District Council of Cleve has retracted support for the development of a desalination plant at Billy Light's Point, encouraging SA Water to reconsider the location.
Local mussel growers reached out to the council with concerns on the location and its potential impact on spat growth and other environments hosting seafood.
Mayor Phil Cameron said locating the facility within the Boston Bay area of Port Lincoln would create irreversible risks to the marine environment and the tourism, fishing, and export industries it supports.
"We don't want any industry at risk, especially seafood," he said.
"It's a worldwide sustainable industry down there and no one really knows where the spat originates from and how it gets on the ropes they grow on, so that's a concern."
Mr Cameron emphasised the immediate need for a desalination plant on the Eyre Peninsula to ensure long-term water security for the region, but not at the location SA Water has proposed.
"We're not against building a desalination plant along the Eyre Peninsula, in fact we're quite in favour of it - just not at Billy Light's Point," he said.
"We have 2000km of coastline on the Eyre Peninsula, and I am confident that a suitable location ... can be found."
Mr Cameron noted finding a location outside of bay areas within SA Water's budget may be a challenge, but it was essential to secure both the water supply and aquaculture industry.
"I think perhaps SA Water have probably chose the cheaper option to confirm with their budget which could impact a huge industry in Port Lincoln, so that's where we've come from with our decision," he said.
It comes after the Port Lincoln City Council opposed the location last month, with Environment Minister David Speirs announcing the plan would be put on hold for 12 months for more data to be collected and further consultation to be conducted.
SA Water has said the aim of the process is to determine the most suitable location for the plant, based on a range of criteria, with a key objective to maintain the existing quality of the local marine and land environments.
"Engagement with the Eyre Peninsula community has been important to this project to date, and will continue to be, as it provides us an understanding of the key priorities of different stakeholders and ensures the outcomes best reflect everybody's needs," a spokesperson said.