The town was the location for Gusen 2 during the Second World War, one of the most brutal sub-camps of the Mauthausen-Gusen system.
It managed slave labour for quarries and was the industrial base for DEST (Deutsche Erd- und Steinwerke GmbH), which was an SS company formed to procure building materials for Germany.
The Upper Austria Bezirksrundschau newspaper reported on Tuesday that the local council plans to build 136 new homes, starting in spring.
Opposition activists have started a petition under the slogan "No flats at the gates of hell", arguing that it is inappropriate to use a location with such historical significance for new housing. Within a few days, the petition had attracted 500 signatures.
The chairwoman of the Gusen Memorial Committee, Martha Gammer, points to "many new facts" which have arisen in the course of research by the filmmaker Andreas Sulzer.
Sulzer has suggested there may have been nuclear tests by the Nazis in the tunnels of the former concentration camp, which he learned of while looking for evidence of the existence of the largest underground Nazi armaments manufacturer, known as project Bergkristall.
Gammer has called for an examination of the soil, to detect possible radioactivity.