Consider two situations: One situation is a city imposing zoning requirements on its residents. According to Libertarians, this is a clear violation of the residents' property rights to do what they want with their property. The second situation is a housing development with "restrictive covenants" or "deed restrictions," greatly restricting what you may do with your property that you purchase there. Libertarians have no problem with this; it's freedom of contract and property rights in action.
The difference between the two is that the developer owns the parcel of land, whereas the city government doesn't own the city. What's the difference? Just a matter of terminology. Just as it's fundamentally wrong for a city to enforce and collect taxes, but there's nothing wrong with the developer (or housing association) demanding a fee from residents of the development. (If you don't like, you don't have to move in. Or you can move out. You've agreed to it if you live there.)
The same principle applies if someone owns a huge chunk of land, say the size of Minnesota. He allows others to live on the land, grants "title" with easements and burdons and restrictions. He sets up a government to enforce and alter the restrictions, etc. It could be any kind of government he chooses.
To make a long story short, there is no fundamental difference between what the owner does with the huge chunk of land, and having a strong and active government unconstrained by Libertarian views of limited government.