Travellers' caravans near the Liberty Stadium in Swansea
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Politicians have criticised legal action by the Commission for Racial Equality (CRE) against a man who began a petition opposing a travellers' site.
But the CRE said they misunderstood that it was only seeking an injunction to stop Carl Lewis encouraging "prejudiced" behaviour.
It wants to start civil proceedings against the Swansea businessman.
Peter Black AM said it would set a dangerous precedent and a councillor said Mr Lewis was being "demonised".
Mr Lewis collected 953 signatures for the petition over the use of an overflow car park near the city's Liberty Stadium as a travellers' site, while standing as a candidate in a council by-election earlier this year.
The CRE in Wales has announced it had instructed lawyers to start proceedings against him under the Race Relations Act.
Mr Lewis, of Llansamlet, strongly denied being prejudiced against travellers.
Lib Dem AM Mr Black said: "Whatever one's views on this matter, the prosecution of local residents who are using legitimate and democratic means to bring their concerns to the attention of the local council will set a dangerous and unwelcome precedent.
"If, for example, the council were to proceed with an official site and lodged a planning application would the CRE determine that anybody who objected to it, and any councillor who spoke against it, were acting in breach of the Race Relations Act?"
Local Conservative councillor Rene Kinzett said "surely all democrats" should "look in horror" at the CRE's decision.
Lib Dem Peter Black and Tory Rene Kinzett both criticised the CRE
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He added it was seeking to "demonise an individual" by using "the force of the civil law against a person who has committed no crime and against whom no police action is ever going to be taken."
But the organisation's director Chris Myant said both had misunderstood its actions.
He said the CRE would apply to a civil court judge for an injection, which he likened to a restraining order, preventing Mr Lewis from "pressuring others to act in a discriminatory way".
He said it was not seeking "to punish" Mr Lewis and, if its application were successful, he would not face a fine or any penalty, so long as he abided by the judge's instructions.
Mr Myant said the move would allow "a constructive" discussion on the issue without "throwing prejudice on the table".
"Far from stopping debate we want to have a full discussion about the issues, rather than a shouting match," he added.
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