Officials in Nanaimo are keeping a very close eye on a tent encampment that was set up yesterday at city hall.

Karen Fry, the city's fire chief and acting director of public safety, says camping at the site is illegal and residents have been told that campfires will not be allowed.

Community activist Amanda Orum says word of the tent city is spreading among residents of existing encampments around Nanaimo.

She says campers are extremely disappointed that Nanaimo lost the chance for $7-million in provincial funding for social housing because city officials were unable to identify a site that was properly zoned and had neighbourhood support.