Last year, Kevin Wilson submitted an application to demolish the house at 15 Lumeah Street in Narrabundah to make way for three units on behalf of the elderly lessee, who Fairfax Media has chosen not to name.

However the development application failed to mention the house was one of more than 1000 properties found to contain loose-fill asbestos.

Worryingly, a demolition plan submitted with the application said the developer would dismantle the timber beams and trusses from roof for salvage and reuse.

The plan stated the house's brick walls would be dismantled by hand and sold, the glass windows would be reused and the remaining concrete would be recycled.

The applicants also declared there was no hazardous or contaminated material on the site, although it said asbestos fibro sheets, where encountered, would be bagged with protective clothing and disposed of at the Belconnen tip.

Neighbour Samantha Harris frantically called inspectors from the Asbestos Taskforce after demolition equipment was parked outside the property on Friday.

This was despite the public submission period for the development application not closing until Monday.

"When I said they were planning on recycling the beams I could almost hear the colour draining from their faces," Ms Harris said.

Within hours senior inspectors attended the site and issued the developer with two prohibition notices and a stop work notice.

The government confirmed the developer knew the house contained loose-fill asbestos.

An ACT government spokesman said, even though the house was not involved in the buyback scheme, there were a number "triggers" in the regulatory framework that ensured buyers were aware of the presence of loose-fill asbestos.

"In this particular case, the taskforce is also aware that disclosure was made during the sales process. Correspondence from the solicitor acting for the seller of the block and related to the Deed of Surrender states 'that the buyer is aware that the property is a Mr Fluffy affected residential premises containing loose fill asbestos insulation'," he said.

"It is also a legal requirement under the Civil Law (Sale of Residential Property) Amendment Regulation 2015 to ensure that an asbestos contamination report is taken into account in the residential property sale process."

An investigation is now underway to determine who knew what and who is at fault, a spokesman from planning minister Mick Gentleman's office said.

But Ms Harris said having confirmation that the builder knew about the asbestos made her feel sick.

"It's just irresponsible, it's just dangerous," she said.

Calls to Kevin Wilson and his company Tranquility Homes Canberra went unanswered on Monday and Tuesday.

Tranquility Homes was described on its website as a "reputable residential property development company".

The ACT government spokesman said the taskforce and WorkSafeACT would work with the developer to make sure the demolition complied with the the Dangerous Substances Act (2004) and Work Health and Safety Act (2011) if the development application was approved.

Sixteen Mr Fluffy houses have been privately demolished and deregistered since February 18, 2014.

Twelve of those received funding through the Assisted Private Demolition program.

Although the demolitions are not administered by the government scheme, they must comply with regulatory requirements by seeking approvals, lodging asbestos removal plans and engaging licensed assessors.

Neighbours said the excavator was removed from outside the house on Tuesday afternoon.

People seeking information from the Asbestos Response Taskforce can use these contacts:

Phone: 13 22 81

Web: act.gov.au/asbestostaskforce

Email: asbestostaskforce@act.gov.au

Facebook: facebook.com/ACTAsbestosResponseTaskforce

Twitter: @TaskforceACT

People who are anxious or concerned can access support through their GP, ACT Medicare Local on 6287 8066, Lifeline (13 11 14) and Beyond Blue (1300 224 636).