Webb and her husband Henry built Spring Cottage in Lyth Hill, near Shrewsbury, more than 90 years ago and she wrote many of her books there, including Precious Bane.
Last year it was sold for £530,000 and now the new owner has submitted demolition plans to Shropshire Council.
Joe Kwaterski wants to build in its place a five-bedroom, three storey house, complete with a swimming pool and a basement cinema, in which he plans to live with his family.
Mr Kwaterski, who has lived in Shrewsbury for 30 years, said the property had been changed and altered and was no longer recognisable as the home Mary Webb built in 1917 and where she lived until her death, aged 46, in 1927.
He said he planned to include some form of commemoration to the writer, whose book, Gone to Earth, was written in 1917 and later turned into a film.
But Gladys Mary Coles, Mary Webb's official biographer and president of the Mary Webb Society, said: "I am utterly appalled at the plans.
"The new owners may not be aware of the literary heritage of the site but, if that is the case, someone should tell them.
"They have inherited a piece of Shropshire history which draws people to Lyth Hill.I am shocked at the news.
"To flatten the cottage and destroy the grounds, which Mary Webb herself created and which inspired her to write her many books and poems, would destroy the ambience of the place."
Born in 1881, Webb once wrote: "To live on Lyth Hill and to live in a house of my own….lovely impossible things I long for".
Nicola Jones, from Bayston Hill, said: "It would be a real shame if we lost the house.
"History is important and we need to keep it in Shropshire.
"If we lose Mary Webb's house what does that say about her?
Mr Kwaterski said: "We are very aware that Spring Cottage is hugely important to the community in Bayston Hill,who are rightly very proud of the fact that it was the home of noted author Mary Webb.
"The house itself has been extended and changed over the years with few, if any, original features left and is no longer recognisable as the original historic property that Mary Webb had built and lived in. It is not visible from the road and not open to the public.
"We are happy to work with the Mary Webb Society to establish the best way to do this."
Shropshire Council has asked for all objections to be made by October 29.
But Longden Parish Council has asked for the deadline to be extended to November 6.