The state government announced on Wednesday that development of the Victoria Street precinct could now go ahead, with sensitive parts of the site, including the former school house, toddlers' block, a memorial garden, significant trees, plaques, foundation stones and a wall on Stawell Street to remain standing.

But the landowner, Ballarat developer Gerard Cosgrave, questioned the validity of the move, telling The Courier his proposed development could not go ahead if parts of the site. including the house and wall, were protected in full.

Wednesday's announcement came only weeks after Victoria Police searched the site for human remains, with former residents alleging in 2013 that there were bodies buried on the site.

Police and forensic officers combed the site for two days in April, finding nothing.

Mr Cosgrave told The Courier earlier this month the process of developing the land had been "a debacle", slamming the Ballarat City Council for its reluctance to build on the dilapidated site.

"We are extremely disappointed in the deterioration to date ... after several attempts to discuss the issue with the City of Ballarat, we were denied approval to erect appropriate fencing and security at the time of purchase back in 2011 for fear of providing a false impression to the general public that a major development approval had already been given," Ms Cosgrave said at the time.

Planning Minister Richard Wynne said the heritage protection would allow Mr Cosgrave's development to proceed.

Mr Wynne said the developer could now submit plans to the City of Ballarat, adding the community now had certainty about the site's future.

"Planning rules need to protect community heritage as well as allow for new development," he said.

"New planning rules for the Ballarat orphanage and school site will allow the site to evolve and serve the community in new ways, while respecting the site's historic past."

City of Ballarat CEO Anthony Schinck did not respond to The Courier's request for comment.