Old Oswestry is one of Europe's best preserved iron age hill forts, a site that has existed for more than 3,000 years and can be seen for miles around.

The war poet Wilfred Owen completed his army training on the grassy mounds of Old Oswestry, which is also said to be the birthplace of King Arthur's wife, Guinevere. It is likely that the Shropshire lad himself, AE Housman, would have spent time admiring the views from the fort's majestic summit on the Shropshire-Wales border.

Now, in what critics say is a result of the government's new planning policy, proposals have been drawn up to build almost 200 luxury homes next to the ancient site, angering local residents and heritage groups. Some 6,000 people have signed a petition opposing the development, part of the county council's plan to build 2,600 homes by 2026 to comply with government targets.

One of 25 hill forts in Shropshire, Old Oswestry has a series of perimeter ditches, formed between ramparts, that were designed to slow down attackers. An archaeological survey in 2010 found man-made structures in fields to the north-east of the fort. Two years ago the discovery of an iron age road, thought to connect The Wrekin, near Telford, with fields near the site, indicated that there was likely to be important evidence of past cultures buried under the soil.

"If houses go up, access to important archaeology and further understanding of iron age culture will be lost indefinitely under bricks and concrete," said Neil Phillips of Hands Off Old Oswestry Hillfort (Hoooh). "The sprawling infrastructure of the housing masterplan, with houses, roads, gardens, link paths and car parking, will severely erode a large part of the green farmstead setting which is an integral part of Old Oswestry's appeal."

English Heritage, which describes Old Oswestry as "a site of great national importance, one that helps to define our national story and identity", has joined Oswestry town council in opposing the scheme, which locals say will do little to ease housing problems. They claim that the 188 homes planned for up to three sites around the fort will be expensive, low-risk developments "for affluent commuters, rich retirees, country retreat investors and holiday cottage landlords". The development will be studied closely by the likes of the National Trust, which has warned that the government's new "pro-development" planning framework will result in a glut of upmarket homes being built on greenfield sites because these offer the best returns for construction firms.

Campaigners have questioned the basis for the council's new homes target. "Shropshire council has acknowledged that the 2,600 figure is both arbitrary and inexact," said John Waine from Hoooh. "This is the sand on which they seem willing to allocate new homes, setting a precedent for future build around this and other Shropshire heritage sites."

Local people have pressed their MP, environment secretary Owen Paterson, to raise their concerns. A spokeswoman for Paterson said: "He never becomes involved in planning decisions, which are entirely the responsibility of Shropshire council. However, he always passes on the concerns of any constituents who contact him to the leader of Shropshire council."

A council spokesman said it was awaiting a response from local groups before commenting further: "We understand that the town council is to meet with representatives of English Heritage in early December and we expect a formal view from them shortly afterwards."