A legal petition by a developer to have Victoria's planning minister decide on its controversial Hosier Lane hotel application has paid off, after Matthew Guy gave the green light to a 107-metre tower.
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The 32-level hotel will now be constructed at the rear of the heritage-listed Forum Theatre, blocking sunlight to patches of Federation Square.
A spokesman for Mr Guy said strict permit conditions had been imposed, including reducing the Hosier Lane frontage from 14 metres to three metres, to preserve street art.
The proposal now also includes internal, as well as external restoration of the Forum Theatre.
Melbourne City Council, which comprehensively opposed the project, had argued that it should have been allowed to rule on the plan.
That is because the proposed hotel development is only about 19,600 square metres, well short of the 25,000-square-metre threshold at which the minister usually steps in.
However Clement Stone Town Planners successfully argued that the development should also include the floor space of the Forum Theatre, as it is undergoing a renovation.
The Marriner family own the theatre and the rear development site, the former MTC building on Russell Street.
Council's finance chair Stephen Mayne said it was now clear why the applicant wanted the minister to be calling the shots. "David Marriner called in the lawyers to make sure the minister was the decision maker and now we can see why."
He said council had put forward a rigorous case arguing why the hotel should be knocked back. "In terms of officer reports, this was the most comprehensive refusal argument we've put up when [Mr Guy] has been minister," he said.
Council's planning experts previously found the benefit of the Forum restoration, which will include repairs to the jewelled clock tower, was far outweighed by the significant negative impact of the 32-level building. The hotel will back onto famed street art destination, Hosier Lane, and planners were particularly concerned the tower would "loom over" the thoroughfare.
Federal Member for Melbourne Adam Bandt said Mr Guy's decision to approve the tower made him the "real vandal of Hosier Lane".
"This is another attack on Melbourne's heritage and puts narrow commercial interests above modern community values," he said.
