Council staff told the Otago Daily Times they planned to ask the contractor - Hall Brothers - to clean up the council reserve, located in Sawyers Bay between the main railway line and Sir John Thorn Dr.
Council parks manager Lisa Wheeler said the council was the rightful owner of the land, having bought it from Ontrack last year, and was planning more beautification work and signage in the area.
However, it appeared the message had not got through to KiwiRail staff in Dunedin, who in January granted Hall Brothers permission to use it as a storage depot for roading work under way in nearby Port Chalmers.
Hall Brothers general manager Nick McEwan insisted when contacted his company had "full permission" from KiwiRail to use the site.
"We wouldn't just go randomly tipping anywhere."
That led to a noticeable increase in heavy vehicles and gravel mounds at the site in recent weeks, which Chalmers Community Board chairwoman Jan Tucker said was "very unsightly".
Mrs Wheeler said she had now spoken to Hall Brothers staff to clarify the situation, and confirmed the council "definitely" owned the site.
The contractor would be allowed to use the site until work in Port Chalmers was finished, in late April or early May, but would be prevented from using it again, she said.
"They [Hall Brothers] have sought to get the approvals that they normally get for putting gravel down there, and were given approvals. Unfortunately, it's by someone else who is not the landowner.
"That's probably a matter I need to follow up with the local branch of KiwiRail."
A KiwiRail spokeswoman said when contacted the situation would be investigated and KiwiRail would "work with the council on rectifying any concerns that they have".
Ms Tucker told the ODT the site had been used repeatedly by contractors over the years, resulting in an unsightly mess on each occasion.
"We hate it - absolutely hate it," she said.
