In June, the council announced it had received $10 million from the federal government to help build a bus exchange. That funding came from the Building Better Regions Fund which was earmarked for "drought-affected" communities.

Mr Mitchell has written to the council and Deputy Prime Minister Michael McCormack seeking clarification on how Launceston was eligible for the grant.

"Can you tell me what checks were done to ensure Launceston's application passed muster, and how your officials came to be satisfied that Launceston is drought-affected," he wrote to the Deputy Prime Minister.

"For the record, Launceston is neither a drought-affected city nor municipality."

He is also seeking a copy of the grant application from the council which would show how they made their case for funding.

"Can you please provide to me at your earliest convenience the data that supports your contention that Launceston meets the drought-affected eligibility criteria," Mr Mitchell wrote to the council.

Mr Mitchell also requested proof the council own the land which the exchange is set to be built on. The Examiner has previously requested a copy of the application three times but was denied.

The council have said they used publicly available data from the Bureau of Meteorology to make the case that Launceston had a serious rainfall deficiency.

Launceston Mayor Albert van Zetten said the application was made in good faith.

That comment came after a member of the public questioned whether the council would return the funding because it was unethically and immorally benefiting.

A spokesperson from Michael McCormack's office has also denied any wrongdoing. They said the project represented a direct benefit for a drought-affected location and that all projects were by the AusIndustry Business Grant Hub.

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