An outcry by townspeople in south-eastern Australia has successfully stopped a proposed bid to open a sex shop in the town of Colac.

The local council in the state of Victoria turned down the application on moral grounds.

"Colac's always been a conservative town and it will remain that way," Mayor Lyn Russell told ABC.

"It is situated where vulnerable people and vulnerable families visit quite often and frequently during the day," she said.

"Being a very conservative town, Colac people would not like to be seen going into the store" she added.

The council voted 5-to-2 against the plan after hearing of community concerns about potential moral and social effects.

The matter could still go to the Victorian Civil and Administrative Tribunal.