The land, purchased by the former Labor government and valued at up to $10 million, was recently axed from state government plans to overhaul Melbourne's largest high-rise public housing estates.

Changes to the local planning scheme, at the request of Housing Minister Wendy Lovell, have also lifted all height restrictions for the 120-metre-long site on the corner of Griffiths and Highett streets.

According to a government explanatory report issued in January, Ms Lovell ''has advised that the Griffiths Street site no longer forms part of the proposed master planning for the substantive Richmond public housing estate''.

A spokeswoman for Ms Lovell said the government was evaluating the 3492-square-metre parcel of land and there were currently no plans to sell or develop the site.

She said the land was ''considered ancillary'' to the Richmond master plan because it was a block away. It is understood the government has told Yarra Council the land is surplus and not required for public housing.

It comes less than two weeks after the state government released a new social housing strategy, which was criticised for not providing any new homes. The plan also referred to a ''strategic divestments, redevelopment and acquisition program'', to reinvest revenue from the sale of old stock.

Opposition housing spokesman Richard Wynne said lifting the site's planning restrictions meant it was ''free go for any developer in town … It is clear that Wendy Lovell has been caught out, and this is the start of her sell-off program of precious public housing land.''

He said the former Labor government envisaged that a medium-density development of 40 to 60 units would be built on the site.

Hay Property Group director Peter Hay said the land was worth between $8 million and $10 million and it appeared the government was paving the way for its sale.

Yarra mayor Jackie Fristacky said: ''It is extraordinary that a decision has been made [that] it is not needed for public housing given the problems with homelessness and the long waiting list for public housing.''