Glasdrumman residents, who live between Newcastle and Kilkeel, have filed for a judicial review of the Planning Service's decision to allow the hotel and chalet scheme.
The 50-room hotel and 20-chalet project, backed by developers Liam Murphy and Will Smith of Glasgiven Contracts, was approved by the planning authority in July.
It has been suggested the development, nestled in the Mournes, could create up to 80 local jobs.
South Down MP Eddie McGrady and MLA Margaret Ritchie have both backed the investment.
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However, residents opposed to the scheme say it is out of character with the area, a view supported by Assemblyman Jim Wells.
Mr Wells told the Irish News: "This sizeable hotel and accompanying chalets are not suited to this area of outstanding natural beauty."
The DUP MLA said if the scheme was to go-ahead it would have a "massive impact" on the tiny hamlet.
Mr Wells also raised concerns that the adjoining chalets would be sold off as private housing, if they do not do well.
Glasgiven Contracts Director Mr Murphy has called on Mr Wells to support the scheme.
He said he was "saddened" that two individuals has decided to take court action.
Mr Murphy described the development as a "great opportunity" to create much-needed construction jobs.
"This has the potential to be a good news story and will not only bring jobs to the area but also tourism and money," added Mr Murphy.
A Planning Service spokesman confirmed a judicial review had been file against the scheme.
(PR/JM)
