Several hotels in Skegness are expected to house asylum seekers into next year, a council leader has said.
Craig Leyland, Conservative leader of East Lindsey District Council, said the hotels' contracts had been extended through the tourist season and beyond.
Last month, hotels in the town were boarded up ahead of a march protesting against them housing asylum seekers.
The Home Office said a record number of arrivals was "placing unprecedented pressures on the asylum system".
Mr Leyland said the impact of the continued use of hotels in Skegness to house asylum seekers would be "hard to judge".
He added that there had been anecdotal evidence to the council of bookings having been cancelled.
"It's frustrating because I know the local tourism industry is very dependent on access to good quality accommodation," he said.
"We've have five hotels taken out of use and, reputationally, I'm aware this is impacting on Skegness and we would like to see a return to its normal function."
Officers at the council are building a case for potential action against hotels being used as hostels for asylum seekers.
The authority believes the government has unlawfully changed the use of the hotels against planning policy and has not applied or obtained the right permissions for the uses.
The council has previously written to the Home Office suggesting it could pursue a judicial review against their continued use.
The Home Office said there were currently more than 45,500 asylum seekers being housed in hotels across the country at a cost of £5.6m a day.
"The number of people arriving in the UK who seek asylum and require accommodation has reached record levels, placing unprecedented pressures on the asylum system," a spokesperson said.
"While we accept hotels do not provide a long-term solution, they do offer safe, secure and clean accommodation.
"We are working hard with local authorities to find appropriate accommodation during this challenging time," they added.
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Hotels boarded up ahead of anti-asylum protest
Council threatens legal action over asylum hotels
East Lindsey District Council
Home Office
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