Villagers have criticised a letter from a Suffolk business which said land would be sold to "the local gypsies" if plans for housing were turned down.
People living in Bramford said they were "shocked" to receive the letter on headed paper from Kingwood Investments.
Councillor Peter Kingham, registered director of the company, has been approached for comment from the BBC.
A spokesman for the travelling community called the letters "absolutely disgraceful".
Mid Suffolk District Council said it had received a formal complaint and an inquiry was under way.
The letter, seen by the BBC, said: "Just to inform you that we are applying for planning at 111a Paper Mill Lane for two detached houses.
"If we do not get the go-ahead, we will be selling the site to the local gypsies."
One resident took to Twitter to say: "Councillor Peter Kingham of Bramford Parish Council delivers blackmail letters to dissuade opposition of his greenfield site development plans."
Others said they were "disgusted" and felt it was "a bit over the top".
Cliff Cordona, chairman of the National Travellers Action Group, said the letter was "absolutely disgraceful".
He said: "Gypsies have a hard enough time as it is.
"We're trying to keep a low profile and keep ourselves out of the public eye because we're not the best seen people and this sort of thing doesn't do a lot of good for us."
The land is currently disused and overgrown.
Mr Kingham is a parish councillor for Bramford Parish Council.
The parish council said it had reported the matter to Mid Suffolk District Council and it would consider any outcome of the district council's inquiry.