A five-lane highway would be the "death knell" for Medlow Bath, residents say.
The highway duplication proposal has concluded there is no way to bypass the little village. Instead, the road will be widened to four lanes, plus a turning lane.
It would be squeezed between the front wall of the Hydro Majestic and the railway line.
The Medlow Bath Highway Action Group (MAG) said Transport for NSW's report on community submissions had ignored their concerns.
Spokesman Stephen Caswell said: "Transport for NSW called for community consultation and feedback in 2019 then chose to ignore the feedback with the sole intention of bulldozing - literally - the duplication through.
"It has glossed over community concerns, failed to consider recommendations for genuine alternative strategies to open up the west for the movement of freight and gives the impression that community concerns have been addressed which could not be further from the truth."
Mr Caswell said a wider, busier highway through the middle of the village would see a loss of community cohesion, a negative impact on tourism, despoiled streetscape and increased noise.
"This proposal will sound the death knell for the quality of life and historic ambience of the village."
MAG is very concerned that the highway would cut off one of only two entrances to the populous eastern side of town.
"Should an emergency such as a bushfire or traffic accident block the highway ... no one could escape the village and, more dangerously, police or ambulance wouldn't be able to reach ill or endangered residents," Mr Caswell said.
The community wanted proper consultation "that actually allows people to provide input into the design process".
Medlow Bath is due to be the first section constructed under the highway duplication plan. The TfNSW report said: "More detailed planning and design for the Medlow Bath section ... will occur following release of this report."