The battle to save the Palace Theatre at the top of Bourke Street is not over with new demolition and development plans lodged with Melbourne City Council.

Earlier this month the state government refused a permit to demolish the building and construct a 72.25 metre-high tower with 200 hotels rooms and 91 apartments.

The Palace Theatre in Bourke Street. Credit:Paul Jeffers

Plans for the site have now been scaled back and fall below the threshold where the state government is the decision making authority.

A new planning permit application has instead been lodged with the council for demolition work and new multi level building.