A major Melbourne housing development with plans to transform Queen Victoria Market is one step closer to construction after being granted federal government approval.

The City of Melbourne outlined plans to construct three new buildings and hundreds of new apartments in 2023 in a new precinct called Gurrowa Place.

On Thursday, the federal government announced environmental approval had been granted for the project, with design conditions attached.

The project required federal government approval given it is heritage listed.  

Minister for the Environment and Water Murray Watt said conditions attached to the development preserved the heritage features of the Queen Victoria Market while delivering more homes for Victorians.

“Through thoughtful design, this project will provide new and much-needed housing while ensuring this Melbourne icon can be enjoyed for many years to come,” he said.

The Melbourne cityscape with Queen Victoria market in the foreground

The City of Melbourne says the project will be the biggest mixed-use development project in its history. (ABC News: Danielle Bonica)

Melbourne Lord Mayor Nick Reece welcomed the news, labelling it “the biggest mixed-used development project in council’s history”.

“This is a huge step forward and it comes at the end of almost 10 years of regulatory reviews and planning assessments,” he said. 

“Lendlease and the City of Melbourne can now confidently move forward with groundbreaking plans to transform the precinct — attracting thousands of new residents, workers and visitors, while boosting business for traders.

“This development will also make a major dent in the housing crisis — delivering new homes, including affordable housing which the city desperately needs.”

Thousands of new homes 

The development by Lendlease would unlock homes for 3,700 people in inner city Melbourne, according to the government.

The plans include two residential towers, a student accommodation tower and a low-rise civic building adjacent to the market.

An artist's render of a development at Melbourne's Queen Vic Markets

The Gurrowa Place development will house thousands of people. (Supplied: City of Melbourne)

Minister for Housing Clare O’Neil said unlocking additional apartments and student rooms in the area would make a “significant difference to housing accessibility in the city”.

“Housing is a life-defining challenge for so many Australians,” she said.

“People are working hard, doing everything right — and still can’t afford a place to call home.”

She said the development would make “a real impact” and highlighted that 130 apartments had been earmarked for low-cost housing. 

Under the plans, the current car park would be transformed into a 1.8 hectare park and the historic Franklin Street stores would be restored. 

Changes made to the plans by the federal government will be reviewed by the state government and the city before construction can get underway, with hopes it can begin next year.