The popular, but rundown, Jam Factory restaurant and entertainment precinct in Melbourne's South Yarra will be gutted and rebuilt as a glitzy 15-storey, $1.25 billion retail and office complex under ambitious plans put forward by owner Newmark Capital.

The landmark site on Chapel Street near the corner of Toorak Road will be transformed into a network of laneways with shops and restaurants on the lower levels, a central public square, and seven individual office buildings housing up to 5000 workers.

The Jam Factory in South Yarra has been earmarked for a major upgrade.

The new centre's open, central public plaza will wrap around the historic factory chimney, now enclosed by the Jam Factory building.

It will cost $450 million to construct and be finished by 2020 if Newmark's plans get a tick of approval from local Stonnington council and residents.