The plan to shut part of Acland Street to car traffic and remove its 51 on-street parking spaces has been known for more than three years, but has made unsteady progress in the face of strong local resistance, particularly among traders.

The traders association is resigned to the plan, but still fears what it will do to business.

Gideon Markham, veteran proprietor of Monarch Cakes, predicts the new streetscape will bring the worst of both worlds: bigger traffic jams as cars filter down tiny side streets and lost trade as people who can no longer park in front of the shops drive on.

An artist's impression of the Acland Street transformation. Source: City of Port Phillip

"They tried to do it 15 years ago, they tried to make it into a mall and the attempt was a terrible failure. It was like a desert here," Mr Markham said.

The road closure is a Port Phillip City Council project but it is being driven by Public Transport Victoria's plan to build a disability-accessible tram platform stop in Acland Street and a twin-track terminus for route 96.

Route 96, between St Kilda and East Brunswick, is Melbourne's busiest with 345,000 passenger trips a week, and Acland Street is its biggest bottleneck, causing delays of three to six minutes in the morning peak as trams get in the way of each other, PTV says.

A spokesman said the new tram terminus would end these delays.

"A double track terminus enables PTV to provide a more reliable high-frequency service for route 96 – trams every 10 minutes or better – to transport hundreds of visitors in and out of Acland Street every hour," the spokesman said.

Traders argue it takes more than an efficient tram service to build a successful retail strip. They fear the 33-metre long E-Class trams that run on route 96 will overwhelm the short and narrow street with their frequent movements.

"Acland Street will become a depot," said Gary Mink, vice-president of the traders association.

Mr Markham said the street was too small for the trams.

"All right, you want to bring monsters [trams] like that because you need to cope with numerous people, then you bring them into streets which can take them," he said.

The association's proposed alternative solution was a new terminus opposite Luna Park, banishing trams from Acland Street, a move PTV rejected in part because it plans to one day introduce even longer, 45-metre trams to Melbourne.

Acland Street's overhaul is part of the $72 million route 96 project, announced by the then Baillieu government in 2012 as part of an end-to-end upgrade of the line.

But Coalition Southern Metropolitan MP Margaret Fitzherbert said it was possible to improve tram services at Acland Street without banning cars.

"When Acland Street closed recently for unrelated work, the big drop in customers alarmed local business owners and gave a taste of what's to come," Ms Fitzherbert said.

A report prepared for the council on the business impact of changing Acland Street found the street needs to evolve if it is to remain a popular shopping and dining strip, and that "creating a better pedestrian environment" could be "a new point of difference" that will make the street stand out.

Changes to Acland Street will be complete by mid-October.