Mayor John Carey wrote to Housing Minister Colin Holt earlier this year to ask that he defer the East Street development until the Planning Minister had approved amendments to Vincent's Town Planning Scheme, which would have prevented the development.
Mr Holt recently wrote back to the Mayor and said the Department intended to proceed with the "positive development".
Richard Morup, the campaign co-ordinator for the Local Voices of Mt Hawthorn group (LVMH), said the the Department of Housing could self-approve a development in any WA council.
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"Locals behind the LVMH campaign are not opposed to social housing at the site but multiple dwellings are not appropriate in the character residential core of Mt Hawthorn; only along main distributor roads.
"The Department is acting as a developer, putting commercial interests ahead of the needs of the community."
Mr Carey said the group ran a campaign that he thought would succeed.
"It's gravely disappointing for the community and extremely bad will by the State Government," he said.
"The application is not fully compliant; it's a furphy for them to say that."