According to Tourism and innovation minister Stirling Hinchcliffe, the government approved a request to repurpose the money.
The theme park suggested a rollercoaster would better bolster international and local tourism, which had been impacted by Covid-19.
"Dreamworld acknowledges and thanks the Queensland government for permission to repurpose the grant in question for the building of Steel Taipan; an attraction offering tremendous benefit to the rebuilding of the tourism industry and to employment in Queensland," a Dreamworld spokesperson said.
Gold Coast City Council councillor Vorster said the justification wasn't adequate.
"I think it's ridiculous to be blaming COVID on this decision," he said.
"Koalas need our help yesterday, they need our help today and they'll always need our help tomorrow.
"The community should have had full transparency if the government changed their minds because maybe then people would change the government."
Dreamworld said the research centre project had not been cancelled but was simply on hold. and would continue to support conservation in the meantime.
"Dreamworld is committed to conservation and makes meaningful change via the Dreamworld Wildlife Foundation, which has raised over $3.5 million for animal conservation and continues to fund important conservation projects in Australia and internationally."