A powerful group of senior archaeologists are sharpening their trowels to fight “ethically unacceptable” plans they say will destroy one of the nation’s greatest Iron Age treasures.

Old Oswestry Hill Fort, an imposing ancient feature that dominates the skyline on the fringe of the Shropshire market town, is on the frontline of an increasingly bitter struggle pitting historians and residents against the local authority and central government.

At stake is the ancient rural surroundings of the hill fort, an elaborate, 3,000-year-old earthwork dubbed “the Stonehenge of the Iron Age”. It is said to have been the birthplace of Queen Ganhumara – Guinevere of Arthurian legend – and was familiar to first world war poet Wilfred Owen, who is thought to have trained in trench fighting there before his posting to the western front.

Shropshire council is intent on pushing through a housing development abutting the fringe of the hill fort – which is a scheduled ancient monument in the care of Historic England – citing government targets for new builds. Land immediately surrounding the 13-acre hill fort has no statutory protection.

Earlier this month, the planning inspectorate approved an application to build 117 homes just metres from the outer perimeter of the fort, despite a petition opposing the scheme signed by 8,000 local people, and a large body of expert opinion on the exceptional importance of the site and its surrounding landscape.

Senior historians, led by two of Britain’s leading archaeologists, fear the government is using the battle over Old Oswestry Hill Fort as a “stalking horse” to test the National Planning Policy Framework (NPPF), introduced in 2012 to speed up development schemes such as housing, roads and high-speed rail lines. For the first time, leading names in archaeology – a discipline not usually associated with activism – have joined forces to fight a single development. They hope to highlight what they see as the grave threat to heritage sites across Britain posed by the liberalisation of planning guidelines and controls to encourage economic growth.

“Old Oswestry is in the premier league of monuments; among hill forts, it’s in the top 10 with Maiden Castle [in Dorset] and Danebury [in Hampshire],” said Dr Mike Heyworth, director of the Council for British Archaeology. “It’s not just sitting there in isolation. It’s part of a network of historic sites of a similar date. Hill forts are part of a whole landscape.”

Sir Barry Cunliffe, emeritus professor of European archaeology at the University of Oxford, has added his voice to those calling for a rethink of planning law to protect heritage sites of all kinds, but especially Old Oswestry. “We need a groundswell of feeling that it’s a case of ‘this far but no further’ as far as some of these major sites are concerned,” he told the Observer. “I think that this [proposed development] has grossly overstepped what is ethically acceptable. Old Oswestry Hill Fort is such a good – well, bad – case. It is stark. If we’re going to win the argument at all, this is one where it could be fought fairly.

“The hill fort is perfectly safe and extremely well looked after by Historic England. But there is a limit to what Historic England can reasonably do.

“The setting of the hill fort is the issue here. The objectors to the development have a very, very strong case. It [The proposed scheme] ruins the setting.”

Campaigners argue that the decision to approve the housing scheme in the face of overwhelming opposition by Oswestry residents directly contradicts the spirit of the 2011 Localism Act. The act is intended to strengthen and enhance local, grassroots decision-making on matters such as planning.

“It is worth making a fuss about this particular issue because it does look like the thin end of the wedge’” said Sir Barry. “There would be nothing really to stop developing land right up to the very boundary of some of our major archaeological sites.”

The last time swords crossed in the region was at the Battle of Maserfield in AD642, when nobles including Cynddylan, said to be the last descendant of King Arthur to reign in the Welsh Marches, defeated the army of King Oswald of Northumbria. Oswald was defeated, dismembered and his head impaled on a pole for a year.

For now, opponents of the housing scheme are content to focus their ire on a planning system they believe has become too bound up with economic objectives, a mechanism for promoting suburban encroachment into sensitive landscapes rather than a safeguard of the nation’s distinct character.

“The NPPF is a relatively new document, and it has not yet been tested through, for example, planning inquiries,” said Heyworth. “People are looking at Oswestry as a test case.

“Part of our concern is that this is an incremental picture, that this scheme is just a stalking horse. If this site gets developed, then who is to say that they won’t then be proposing a little bit more, a little bit more, and then the whole of north Oswestry has exploded into a development zone.

“Some elements of the NPPF are successful, but others, in the context of the importance it places on economic development, look weaker than those that were previously being used. This creates the possibility that it might be harder to argue against individual planning applications – thereby leading to successive small schemes that over time add up to large-scale development.”

Threats to the rural settings of historic buildings and sites have multiplied as local authorities meet housing targets set by the government. In one notorious case, the last piece of historic farmland belonging to the grade II listed, 17th-century home of one of Britain’s earliest professional women artists, Mary Beale, is now being built over despite strong opposition by local people, the local authority and support from leading art historians including Sir Roy Strong.

Councillors had unanimously rejected plans to build “executive homes” on the land, at Allbrook Farmhouse, near Eastleigh, Hampshire – where Beale lived and worked in the 1660s, in what is thought to be Britain’s earliest surviving artist’s studio – but the developer appealed to the national planning inspectorate. Following a brief hearing, the inspectorate overruled the local authority and allowed an estate to be built within metres of the farmhouse.

Campaigners for Old Oswestry Hill Fort say they will launch a legal challenge against the decision to give the go-ahead to the housing scheme, if necessary by recourse to European legislation intended to protect cultural heritage assets within landscapes, a binding agreement to which the UK is a signatory. “The key part of European law may be the European landscape convention,” said Heyworth. “This is a relatively new thing for the UK, not entirely tested yet. That is one which we will be looking at very closely.”

The Conservative MP for North Shropshire, Owen Paterson, is refusing to support the campaign to re-site the development. “I never take sides on planning matters,” the former secretary of state for the environment said last week. Agreeing to pass on the concerns of his constituents to the government, Paterson said: “They [the campaigners] came to my surgery and asked me to write the letters … People often ask if I can write on their behalf.”

A spokesman for Historic England said: “Old Oswestry Hill Fort is a very important site of national significance. Since 2007 Historic England, previously English Heritage, has consistently expressed its concern over proposed development sites near the hill fort and we have worked with the landowners and Shropshire council to find ways to reduce potential impact, including upon its setting.”

A spokesperson for Shropshire council told the Observer: “The sensitivity of the Old Oswestry Hill Fort and its setting have been recognised by Shropshire council throughout its local plan-making process, which started in 2010. However, Shropshire council does not accept that proposed development would result in substantial harm to the significance of the hill fort. National planning guidance therefore requires that any impact must therefore be weighed against the public benefits of the proposal.” The council stated that it is obliged to provide 27,500 new homes within the county between 2006 and 2026.