Simon Saunders paid £235,000 for one of the 14 timber huts which overlook Dorset's Jurassic Coast at West Bexington only to demolish it and replace it with a bigger one bedroom structure, which is now nearing completion.
However, a local heritage group said the new hut had "ruined the integrity" of the row of chalets, and criticised district council planners for giving permission to the project.
Lester Cowling, 64, of the West Bexington Heritage Group, said: "It has ruined the integrity of that iconic row of chalets that have been there for 70 years, and evoke a more simple time.
"It is not a similar size to that which was there previously. The new building dwarfs the neighbouring properties and is totally out of proportion with them.
"It sticks out like a sore thumb and planning permission should never have been granted."
David Lyth, a local resident, said: "There is a lot of anger in West Bexington.
"We want to know how the planners could allow a monstrosity of a barn to be erected in the middle of a row of beach chalets which are part of Dorset's World Heritage coastline".
Anthony Edwards, chairman of Puncknowle and Swyre parish council, which covers West Bexington, said it was an "incongruous eyesore".
The parish council has agreed to write to the district council planners expressing their "unanimous opposition" to the building in its current form.
The new hut has been constructed out of oak and red cedar wood and will have solar panels on the roof to provide energy. It has running water and drainage.
Mr Saunders, 46, a former designer for Porsche and Aston Martin, set up Ariel Motor Company in Crewkerne, Somerset, in 2001, and later launched the £36,000 Atom car, which was recently featured on the Top Gear television programme.
Defending his hut, Mr Saunders said: “The planners have done their job properly and it has been through the due planning process. The parish council saw all the plans, and all of the measurements on it. The measurements have been checked by the enforcement officer twice now. The parish council had their opportunity to have their say and they raised no objections.”
Mr Saunders said he had tried to construct something “interesting and new”.
He added: “The row of chalets are all different and they have reflected individual tastes and changing tastes over the years. They were tiny little places to begin with and over the years they have all been extended. Ours is not as wide as the widest one and not as deep as the deepest one.”
Mr Saunders attracted some sympathy on a local newspaper website. One comment said the new hut "looked like a big improvement when compared to the other shabby looking structures" in the row. It criticized the parish council for "objecting after the event".
David Evans, head of planning at West Dorset council, said the chalet was being built in accordance with the original plans.
He said: "There was no objection to the proposal from either the parish council or interested third parties (at the time of the application).
"Had they objected then this application would have taken an alternative route, which may have led to a different decision.
"A planning enforcement officer has visited the site and taken further measurements that reveal that the bungalow is in accordance with planning permission."
Mr Evans said the council would ask Mr Saunders to paint the red cedar walls in a colour that was in-keeping with the neighbouring huts.
