The North-East Bioregional Network has appealed the Break O'Day Council's decision to approve the works, which involve 3.6 kilometres of upgrades and the addition of two overtaking lanes.
The grounds for appeal include the impact on swift parrot habitat, with feeding and hollow-bearing trees proposed to be removed, and a lack of adequate roadkill assessment given the presence of Eastern and spotted-tail quolls.
The NE Bioregional Network also claims that swift parrots have been seen within 500 metres of the covered hollows in the past week by a local landowner.
The sightings have been reported to the Tasmanian Natural Values Atlas.
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Conditions on the permit include that a qualified ecologist must confirm that flowering eucalypts are not in use by swift parrots before their removal.
Concerns also include that the proposed tree planting offsets will take over 100 years to replace lost tree hollows and decades to replace the blue gum nectar resource.
NE Bioregional Network president Todd Dudley said that if just one of the eucalypts was flowering and there is a swift parrot on it, the works in that area cannot proceed.
"So why block the hollows?" he said.
Concerned parties will meet next week for mediation to determine if the matter can be resolved without the need for a hearing, or if interim measures - such as the removal of the boards blocking the hollows - can be put in place.
The hearing in the Resource Management and Planning Appeal Tribunal is set to occur in January, with a ruling possible in February.
Breeding season for the critically endangered swift parrot is from September to January.
According to advice from DPIPWE, the project area includes "a number of trees" with evident hollows, 16 large blue gums and three smaller black gums.
A State Growth spokesperson said the hollows would remain covered.
"Only six trees identified for removal during construction have been treated in this way, many of the hollows were considered unsuitable for nesting based on their size and there is an abundance of other potential breeding habitat identified in the surrounding area," the spokesperson said.
"As such, the department does not intend to uncover the hollows.
"Depending on the outcome of the appeal, the trees will be inspected by relevant authorities before any removal."