Super-sized advertising billboards "masquerading as payphones" are being installed on Melbourne's crowded CBD footpaths, and a legal loophole means the council is uncertain of how to stop it.

The City of Melbourne is pursuing a range of measures, including possible legal action, in a bid to halt the rollout of another 80 in the city centre.

Council planning spokesman Councillor Nicholas Reece told ABC Melbourne's Jon Faine the new payphones were almost 50 per cent larger than previous Telstra phone booths.

"We are not going to sit idly by and allow the plundering of the public realm for private profit."

But it's not yet clear how the council can stop it. In fact, they've already signed off on 40 of them.

Under the Federal Telecommunications Act 1997, planning approval is not required for telecommunications infrastructure that meets "low-impact" criteria.

Pedestrians in Melbourne's busy Bourke St Mall have to walk around a new model Telstra pay phone. ( Supplied: City of Melbourne )

Forty new-generation phone booths — which are 2.64 metres high and 1.09 metres wide — were approved by City of Melbourne planners in 2016.

The council said at the time that legal submissions stated they met the "low-impact" criteria and were considered to be in accordance with the Melbourne Planning Scheme.

But with Telstra considering rolling out another 80 of the phone booths, and complaints coming in from pedestrians and retailers, the council is considering all its options.

"Twelve of these new super-sized advertising structures are being installed in Bourke Street — two of which are less than five metres apart," Cr Reece said.

"With nearly 90 per cent of Australians owning a mobile phone, it is impossible to comprehend that there is a need for this number of Telstra installations in the central city."

Cr Reece said advertising industry sources estimated that each billboard earned about $8,000 in revenue per week.

"For 120 in prime locations throughout the city centre, that's millions of dollars per year going to Telstra with no rental costs or compensation for the imposition on our public spaces," he said.

Three Telstra payphones within a couple of metres of each other on the corner of Elizabeth and Bourke streets. ( Supplied: City of Melbourne )

Rotating ads a source of 'visual clutter'

The phone booths show rotating advertisements on a 75-inch LCD screen, which is 60 per cent larger than previous signage displays.

"This is visual clutter and detracts from the streetscape," Cr Reece said.

"We need to urgently review the current advertising signs policy in the Melbourne Planning Scheme, which has not kept pace with the proliferation of electronic signage."

He said council officers had held discussions with Telstra executives and also passed on their concerns to the Federal Government.

"We would prefer to resolve these issues through discussion," Cr Reece said.

"Legal action is a last resort."

A Telstra spokesperson said the company was upgrading 1,800 payphones across all capital cities.

Seventeen of the 40 council-approved sites in Melbourne had been completed, with a further 80 sites still under review.

"The threat of legal action is disappointing," the spokesperson said.

"We have been liaising with the City of Melbourne over a number of years, including as recently as last month, on this issue. We will meet with the City of Melbourne to continue discussing their concerns."