Barrow Council and developer the Story Group have objected to plans for 1,760 new homes in neighbouring Ulverston.
Councillors in Barrow voted to challenge a proposal in South Lakeland District Council's local development framework to build the new houses. The new homes would be delivered over the next 15 years.
Story was appointed preferred developer in October 2008 on the Barrow Waterfront scheme, which would deliver 650 residential units and a 350-berth marina. Work has stalled as the level of funding is agreed between Story and the Homes & Communities Agency.
Barrow's director of regeneration Phil Huck told the executive committee that the scale of the South Lakeland proposal for Ulverston is unsound. The council said the Barrow scheme could be threatened as a result.
South Lakeland's interim development manager, Steve Ottewell, said: "We have carried out a large amount of consultation. There is a wealth of evidence that led us to write the strategy in the way we did."