Wrekin Housing Trust wants to built the 20 affordable homes on Weston Road, next to the fishing pools on the east side of Morda.
Oswestry Rural Parish Council says Morda is already overdeveloped with the village primary school at capacity.
Councillors also fear more homes will add to the flooding problems in the area.
Other objections from residents include claims that Weston Road is already a rat run which is dangerous for walkers and cyclists.
They say the site is outside the development boundary and there are more suitable sites elsewhere.
In a report to Shropshire Council's north planning committee, which meets on June 8, planning officers say developers have applied for affordable homes for local people.
With 29 people on the housing waiting list putting Oswestry Rural as their preferred place to live, the report says it is considered that the land could be seen as an exception site with building allowed outside the development boundary.
Wrekin Housing Trust says the plans are for four, one-bed bungalows, four, two-bed bungalows, eight, two-bed dwellings and four, three-bed dwellings.
"There is an identified need for affordable housing in the village of Morda and the location of the proposed dwellings is considered to be acceptable," the report says.