The Savoy Tavern in the CBD has risen from the ashes before and its operator insists it can happen again.

The property has been earmarked for redevelopment with the state government announcing it had approved a 68-floor tower on the site.

The proposed building, on the corner of Bourke and Spencer streets, will include 660 apartments and 160 hotel rooms.

Savoy Tavern publican Samuel Daish said the pub would remain open until after the end of this year. It will then be demolished to make way for the new building.

Mr Daish expects it will reopen two or three years after the demolition.

"We want to be part of this corner," Mr Daish said. "We think it's a landmark tower, we like the design of it."

The Savoy Tavern reopened last year almost 20 years after it closed.

Mr Daish said it had become a popular venue since it reopened.

"Business has been really strong and growing," he said. "People have really warmed to it."

While Singaporean developer Fragrance Group owns the site, Mr Daish said his business was working with the developer to retain a presence on the ground floor.

Planning Minister Richard Wynne said the Fragrance Group had produced an innovative and clever proposal for the site.

"We are going to have a development that Melbourne can be really proud of," he said.

In September last year Fairfax Media reported the former Coalition government had received an application from the Fragrance Group for a 300-metre skyscraper on the site.

The smallest apartments in the new tower will be tight for space, at about 40 square metres. The apartments in the new building will range in size from one, two and three bedrooms.

Melbourne City Council previously raised concerns that the original proposal would overshadow some parts of the Yarra River.

But Mr Wynne told reporters on Thursday that the height of the building had been reduced significantly and overshadowing the Yarra was no longer a problem.

The original proposal included almost 1000 apartments and 280 hotel rooms.

This week Mr Wynne also released a discussion paper seeking input on concerns about poorly designed units. The paper was released amid government research revealing that more than three-quarters of new one-bedroom apartments built across the state are 50 square metres or less.

Mr Wynne said he was concerned about the small size in some apartments in Melbourne but insisted good design was also crucial.

Opposition Leader Matthew Guy accused Mr Wynne of approving a building with apartments he believed were substandard. "It's quite bizarre," Mr Guy said.

Mr Guy said the government was "all talk about apartment standards and no action". He said minimum apartment standards should have been in place before Easter.