The road between Mauriceville and Mauriceville West would also be severed.
Elaine Atkinson, 79, has lived on South Rd for nearly 50 years with her husband, who died last year.
"I know my husband would be against it, because we have been here for 49 years. There must be somewhere else they can do it.
"My husband's ancestors lived here," Mrs Atkinson said.
She said the area was a historical place. "I think it's terrible".
"It's surprising how many people from Scandinavia; Norway and Denmark people, come to visit these graves," she said.
Mrs Atkinson does not think her home will go under water but she will be cut off from the road.
"They want [to find] places where it's not going to interfere with people's houses.
"How are we going to go to town? Get a boat?"
Farmer Bill Taylor has lived in the area for 14 years and said those behind the proposal were "cultural vandals".
"In 1878, the Scandinavians came to New Zealand. One group of them settled here, it was all virgin bush and they cleared the land by hand. Seventy families lived in this valley, and North Rd and South Rd.
"These people are the first colonists of this land here now. Now we've got these cultural vandals going to come along and just smother it all with water," Mr Taylor said.
He said the brief of the Wairarapa Water Use Project Leadership Group spoke of Maori cultural heritage but made no mention of the Scandinavian heritage in the area.
"There are people buried in this valley in unmarked graves, so how do they identify where these people are? If they go and flood it, they're flooding these people, their burial sites.
"So how can they do that? How can we let them do that?" Mr Taylor said.
He said the water would be lapping, if not inundating, the low-level graves at the Lutheran church cemetery.
Mr Taylor said the proposal had left him in limbo.
"It's very likely it's going to be years [before a decision is made]. Who would want to buy when they've got the chance that it's going to be flooded, and we don't want to leave anyway. We're happy here, we're intending to spend the rest of our lives here."
He does not want to sell his property but is concerned he could eventually be forced to move.
"I said to them go away, I'm not interested. There's no way they're going to buy from me on a commercial basis. That leads me to suspect that somewhere along the line, if you don't co-operate, they're going to get heavy with legislation."
"My big worry is they're going to get themselves so far down the track that they won't be able to save face and they will have to keep going."
Mr Taylor said the scheme would be very destructive of existing development and would cause "tremendous upheaval to people's lives".
He said the group was focusing on the wrong places.
"I think they're on the wrong track."
Wairarapa archivist Gareth Winter said it would be a shame to see historic sites inundated.
He said the lake would also submerge the house of Gunder Gundersen, an important early settler. "I know Gunder Gundersen's descendants won't be very happy."
Mauriceville was currently looking at promoting the idea of Scandinavian tourism.
"Obviously, they won't be as interested in coming and looking at an irrigation dam."
