Environmentalist Lorraine Adams, who watches over the penguins at the harbour, said if she had known about the work, she would have been "lying in front of the bulldozer".
The work was carried out last week and Miss Adams estimated that when she was down there on Saturday night there were about 30 penguins, chicks and moulting birds wandering around wondering where their nesting areas had gone.
But the Waitaki District Council said the work needed to be done.
The Department of Conservation (Doc) was consulted, Oamaru Penguin Colony resident marine biologist Philippa Agnew oversaw the clearance and spotters were used in front of the digger to make sure no penguins were harmed.
The opportunity was taken to clear the hawthorn bushes alongside work being done to extend Wansbeck St down to the harbour.
Harbourside project co-ordinator Rex Stringer said there were not only penguins in the bushes but also large rats and rabbits.
Old rubbish dumped in the area was also removed.
"I felt we did everything we could to make sure no penguins were harmed," he said.
Ms Agnew monitored the clearance and relocated penguins that were found.
Spotters were in front of the digger to watch for birds.
However, Miss Adams was angry about the work which, she said, should have been delayed until the moulting and breeding seasons were finished some time next month.
She put up warning signs for penguins to keep out to draw attention to what had occurred, as well as providing about 10 nesting boxes to house moulting birds and chicks.
On Friday, when she saw what had been done, she was "shocked" and "quite sad".
Harbour committee chairman Gary Kircher felt contractors had done well to minimise the effects on the penguins.
"We make sure penguins are not affected because they are a great asset."
The blue penguin was a hardy bird and always found other places to nest, he said.
