It may have been good enough for Dame Nellie Melba, who helped plan the University of Melbourne building that bears her name, but the Melbourne Conservatorium of Music building is no longer fit for purpose for the thousands of students who use it.

Instead of squeezing into Parkville's century-old Melba Hall, originally built to cater for about 80 students, music students and staff will cross the river in 2019 and join Victorian College of the Arts students in Southbank.

The cultural precinct in the city's south will be home to a new $105 million conservatorium, the plans for which include a 443-seat auditorium and a public square at 33 Sturt Street, on the site of what is now a car park behind Melbourne Recital Centre.

The university announced the project with the state government and philanthropic groups on Tuesday. Acting premier James Merlino​ says the government is contributing a $3 million capital grant to the project and an extended lease for the site. The Myer Foundation and Ian Potter Foundation have also contributed.

Mr Merlino predicts the development will contribute $350 million to the state and create more than 2000 jobs during construction.

A number of sites had been mooted for the new conservatorium over the years, but it wasn't until architect John Wardle​, whose firm has designed the new building, suggested the car park location that everything finally fell into place, VCA/MCM faculty dean Professor Barry Conyngham says.

"There's been a need for a new conservatorium for many, many years," Professor Conyngham says. He credits the cooperation between the government, university and philanthropic groups for finally getting it over the line. The philanthropist Martin Myer, in particular, had helped come up with a "big idea", he said.

The location will give the conservatorium's staff and students access within "shouting distance, or singing distance" to 20 arts organisations in the neighbourhood, Professor Conyngham says, including Melbourne Recital Centre, the Australian Ballet, Arts Centre Melbourne and Melbourne Theatre Company.

Mr Foley said the announcement was the latest step in the state government's plans to boost the city's cultural precinct.

First announced under the former Liberal/National Government, the plan included expanding the VCA into the building used by the Victoria Police Mounted Branch stables in Dodds Street as part of a $42 million redevelopment. Mr Foley said that work would continue "untrammelled" under Labor, and would begin this year, with funds for the expansion included in this year's state budget.

The conservatorium was first established in 1894, 15 years after the university awarded Australia's first music degree. Its alumni include such musical luminaries as Dame Nellie Melba, Percy Grainger​ and Peter Sculthorpe. The VCA/MCM faculty now teaches more than 7000 students.

Five years after a major community campaign to save the VCA and stop its merger with the university, Professor Conyngham says many of the things the merger's opponents fought to keep, such as studio-based learning, had been retained.