Defence force chief Mark Binskin has backed keeping Defence Housing Australia in public hands to ensure it continues to provide quality housing for defence personnel.
Air Chief Marshal Binskin said DHA, which the Turnbull government wants to privatise, had a good understanding of the "unique requirements and demands military service can present".
The Alliance of Defence Service Organisations backed his stance, saying it feared the Department of Finance planned to siphon off funds from Defence Housing Australia for a one-off financial windfall.
Air Chief Marshal Binskin said defence supported retaining DHA as a government-owned entity.
"Defence Housing Australia provides an essential service to Australia Defence Force personnel and their families, which in turn supports Australia's military capability," he said in a statement.
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DHA was founded in 1987 to provide housing to defence personnel. That followed longstanding complaints about the standard of defence accommodation, some dating back to World War II.
Its 2014/15 annual report says its property portfolio now exceeds 18,000 homes worth $2.9 billion. It paid the government a dividend of $54.6 million.
The government's commission of audit, released in May 2014, recommended privatising a number of government entities including DHA.
The government has conducted a scoping study on the possible sale but made no decision on privatisation in the May budget.
This week, DHA managing director Peter Howman resigned and was promptly replaced by Finance Department official Jan Martin.
ADSO spokesman David Jamison said that could only mean the government intended to proceed with privatisation.
That flew in the face of good public policy, with DHA providing housing to defence families at little or no cost to the budget and even paying the government a dividend, he said.
"Our fear is that the Department of Finance aims to siphon off capital and operating funds to give the government a one-off financial windfall and in the process emasculate DHA, to the detriment of Australian Defence Force families," he said in a statement.
