SAN DIEGO (CBS 8) - The ACLU is accusing the City of Escondido of discriminating against children fleeing violence and persecution in Central America, and it has taken legal action.

Escondido's City Council voted in October 2014 to reject an appeal to allow a shelter for undocumented immigrant children to open. The ACLU is now challenging that vote through a lawsuit filed in Federal Court, but Escondido's mayor said the ACLU should stay out of his city's business.

At the heart of the case are unaccompanied and undocumented children who continue to flee their homes in Central America and seek refuge in the United States.

Last fall, the City of Escondido refused to allow a non-profit federal contractor called Southwest Key to open a 96-bed residential facility at a former nursing home in the city's limit. It was intended to temporarily house the unaccompanied minors.

The proposal sparked heated debate and passionate protests on both sides of the issue.

The ACLU filed a federal Lawsuit this week alleging racial discrimination and anti-immigrant bias in the City of Escondido's decision.

"The City of Escondido capitulated to discrimination and xenophobia in the community," said the ACLU.

The lawsuit claims the city violated both state and federal fair housing laws, as well as the constitution's supremacy clause which states that a city cannot restrict the federal government's operation within its borders.

Escondido's mayor, himself an immigrant, challenged the ACLU.

"The city's decision was strictly based on land use policy, and had nothing to do with immigration," he said.

He also said he is confident that he will prevail in this litigation.

The ACLU contends it has the federal law on its side.

Critics of the proposed facility had cited concerns over rising crime rates and lowered property values, which the ACLU said is often code for bias.

The City of Escondido has 21 days to respond to the ACLU complaint.