The apartment building with street-level retail would be built on North Road above Ormond station, and in a first for Melbourne's mostly low-rise suburbs, will be built directly over the railway tracks. It would be significantly taller than other buildings in Ormond.

The deck on the which the building would stand has just been built during the 37-day shutdown of the Frankston line between Caulfield and Moorabbin to remove three level crossings.

The line is due to reopen in a much transformed state on Monday.

Labor flagged in Opposition that it would develop land as part of some level crossing removals to help pay for other transport upgrades, including extra station car parking and yet more level crossing removals.

Ormond marks the first example by the Andrews government of this "value capture" approach.

At up to 13 storeys high, the development would be much taller than any other building in that part of Melbourne, which is low-rise in character.

The building, which the government said would also include ground level shops and restaurants, would have to pass the usual planning hurdles before being approved.

Just south of Ormond, Bentleigh and McKinnon stations are also being rebuilt as their level crossings are removed, and land has also been set aside there for future development.

The government said developments at those two stations would be smaller in scale, in keeping with the village atmosphere.

Luke Donnellan, the acting public transport minister, said the Ormond station site on North Road was well suited to larger-scale residential development, given North Road was a busy six-lane arterial.

"This location is ideally suited to new homes and businesses – in the heart of a vibrant community, directly connected to transport, shops and opportunities," Mr Donnellan said.

The government estimates the development will create 250 construction jobs and 300 ongoing local jobs at businesses that would occupy the new building.

The government has plans to remove 50 level crossings by 2022, and these three in Ormond, McKinnon and Bentleigh are among the first.

There are also plans to build a new tower at Gardiner station in Glen Iris, where the Burke Road level crossing was recently removed, the government said.

Other potential development sites have also been earmarked as part of the sky rail project, the removal of nine crossings on the Dandenong rail corridor.

Daniel Bowen, spokesman for the Public Transport Users Association, said there were good arguments for developing around railway stations, but predicted many locals would be shocked by the proposed height of the building Ormond station.

"Perhaps it will be a landmark but it would want to be very beautifully designed to have that status," Mr Bowen said.

David Davis, the Opposition's planning spokesman, said the proposed height of the development was excessive for Ormond.

"This is another treacherous step by [premier] Daniel Andrews," he said. "The community will be shocked to see 13-storey towers built when they expected a more human scale."

VicTrack, the government corporation that owns the state's railway land, also has a number of development projects under way, including one over the railway tracks at Windsor station on the Sandringham line.

Apartment and retail developments at Hampton and Jewell stations are also under way.

VicTrack has big plans for Jewell station in Brunswick. Image: Supplied.