Education Minister James Merlino said the long-awaited school for up to 650 students will be at Swinburne University's Prahran site, abutting the Melbourne Polytechnic, and the National Institute of Circus Arts (NICA).

The school is to be established in the 5500-square metre site – the original home of the Prahran Mechanics' Institute – by 2018.

Mr Merlino said going ahead with the plan to buy the entire Victorian School for the Deaf site on St Kilda Road, which comprises heritage brownstone buildings and under-developed freehold land, would have cost the state up a upwards of $80 million, rendering the deal "irresponsible".

He said an alternative option, for a 10-year lease the land for the new school for $50 million, was not viable.

"When you think about those figures, that is effectively delivering one high school at the cost of three high schools," he said on Wednesday. "I'm not going to do it.

"We promised a high school in Prahran and we will deliver it in a financially responsible way."

Mr Merlino said he plans to stick with the $20 million committed to the school by the previous government.

Prahran parents will have to abandon expectations for grassy ovals and soccer pitches at the  inner-city school, with Mr Merlino spruiking "partnerships" with the NICA and the Melbourne Polytechnic instead.

"The opportunity for secondary school students here to be involved in activities in NICA are very exciting … it will be different, but it will be innovative and exciting."

Negotiations with owners of the St Kilda Road site Deaf Children Australia ended last week, with the charity's chief executive Damian Lacey saying the government's offer was "uncommercial". The result is likely to disappoint locals after a long community campaign for a school on the St Kilda Road site.

Deaf Children Australia is reaching the final stages of negotiations for the site with interested parties, and the neighbouring Wesley College has placed a bid to secure the area.

Opposition education spokesman Nick Wakeling said the state government had "trashed months of community consultation which unanimously supported the Deaf school site".

"The government has ignored the will of the people and many hours of engagement with local parents and community leaders. This is a lost opportunity for the local community," he said.

Local Greens member for Prahran Sam Hibbins said: "There has been a lack of communication from the government on the progress, location and opening date of the new school … I am calling on the government to immediately begin formal community consultation to allow the local communities voice to be heard and to be kept up to date on the progress of the new school."

There is currently no state school in the electorate of Prahran other than the select-entry Melbourne High, with some students forced to spend more than an hour on public transport to get to Hawthorn, Glen Eira, Elwood and Melbourne Girls' secondary schools.

The government is considering either renovating the existing six-storey Swinburne University building to fit 500 students, or building on the car park to provide a gymnasium and more teaching space, to fit 650 students.

The Education Department released a report in 2013 which showed there was insufficient demand for a new secondary school in the area, but Mr Merlino said the new school was crucial to providing some "certainty to the local community".

The Swinburne University campus has been unoccupied since January 2014 when the university consolidated its higher education offerings at its Hawthorn campus.