A major housing project on Sydney's south-western fringe will remove koala habitat with the developer using an existing council parkland to compensate for the destruction.

Lendlease's 216-hectare Gilead development will leave about 30 hectares of woodland, with the company permitted to offset vegetation removal by improving habitat on the adjoining Noorumba Reserve.

Koalas in Sydney's south-west are under threat from rising population in the region. This marsupial was photographed in St Helens Park. Credit:Nick Moir

Conservationists, though, say the project will increase pressure on one of the state's healthiest koala populations as colonies shrink statewide because of destruction of habitat and disease. Campbelltown City Council should be responsible for enhancing the reserve, they said.

"The Campbelltown koalas are a precious wild koala colony virtually on Sydney's backdoor step," Sharyn Cullis, secretary of the Georges River Environmental Alliance, said. "Their continued protection and welfare should be a matter of pride for the whole of Sydney."