In its latest response to plans to build 91 houses on land near the 3,000-year-old monument, Historic England said the development's impact would be "less-than-substantial".
But campaign group Hands off Old Oswestry Hillfort (HOOOH) group says the public body's response "raises far more questions that it answers".
The group has produced a nine-page document criticising Historic England's four-page response to Shropshire Council's public consultation which was published shortly before the deadline two weeks ago.
The proposal is the third application submitted by Galliers Homes and is a scaled-down version of plans for 100 homes which the developer withdrew in March.
HOOOH has been campaigning against plans to build on or near the hillfort since plans were first included in Shropshire council's development plan (SAMDev) in December 2017.
The current proposals would see homes build 300 metres away from the hillfort on land north of Whittington Road.
The campaign group criticised Historic England for "sanctioning proposals that do not comply with their own criteria and guidance."
"This includes conditions in a Statement of Common Ground signed with Shropshire Council in 2014 that allowed this highly controversial site to be adopted in Shropshire’s SAMDev local plan," the group added.
Campaigners say the heritage body is backing down on key requirements, including a northern development limit to ensure houses do not extend beyond the line of an adjacent factory.
HOOOH said: "We seek proper clarification from Historic England as to why they are not keeping to these criteria.
"The northern limit they stipulated for built development is a clearly defined threshold, not something to negotiate with the applicant on the basis that proposals achieve partial compliance."
HOOOH has held several "hug the hillfort" events where Oswestry residents have joined hands on the hillfort to show their opposition to developing the land.
Historic England described the new proposal as "an improvement on previous ones, partly because it more fully complies with the Statement of Common Ground".
"A level of impact inevitably remains, however, especially in terms of the view towards the hillfort from Whittington Road," it added.
In response, HOOOH said: "This is just not good enough.
"Historic England, whose remit is to safeguard our shared national heritage, has a duty to ensure that any proposal wholly complies with the agreed conditions.
"They should be far more rigorous: a unique hillfort and archaeological landscape are at stake here."
The campaigners added: "Historic England has retreated from having serious concerns over the heritage impacts of the proposed development and is now parroting the developer’s statement about distances between the hillfort and proposed development, as if these are acceptable boundaries.
"They offer no explanation as to why these distances, which form no part of the Statement of Common Ground, are significant and carry weight for accepting development.
"Apart from the immediate damaging consequences for Old Oswestry, an exceptional type site for Iron Age understanding, this could set a very dangerous planning precedent for developers to ravage heritage landscapes integral to the story and experience of ancient monuments across England."