"At this stage there is nothing stopping the developer bulldozing the Palace tomorrow," the National Trust's Anna Foley said. The Palace Theatre in Bourke Street. Credit:Paul Jeffers "The system has really failed the Palace Theatre. It's a building that was obviously significant. It's only through the course of the many heritage hearings conducted over the past two years that we have really come to understand how special it is." Melbourne City Council led the legal fight to prevent the demolition in the Victorian Civil and Administrative Tribunal, supported by members of the Save the Palace Theatre group and the National Trust. But late on Friday it was announced the tribunal had granted the permit for the residential hotel. In a decision that will enrage Palace Theatre supporters, the tribunal's senior member Michael Wright QC and member Cindy Wilson said that the retention of the theatre's facade above ground level provided "an acceptable response to the heritage values of the precinct".

They also found that, while parts of the internal of the Palace Theatre may have reflected the venue's layered and interesting history, the recent removal of much internal fabric by the construction workers had "diminished that legibility". The members said while they accepted the Palace Theatre had social and heritage significance – they could only act on the relevant heritage controls which related to the effect of the demolition on the wider Bourke Hill precinct. The new development will have 143 rooms, a gym, swimming pool and restaurant. Save the Palace Theatre is yet to give up its fight, with spokeswoman Rebecca Leslie saying it would now appeal to Melbourne council to apply to the Supreme Court for an injunction.

"If they don't do something today, being a long weekend, there might not be much left of the Palace Theatre come Tuesday morning," she said. Melbourne councillor Rohan Leppert said he had asked the council's planners and a legal officer to look at the decision to see if there were grounds for appeal, "but on the face of it, it's looking more and more difficult to retain it now". He said that the tribunal members had taken a very narrow approach to the case by "discounting" the almost 45,000 people who signed a petition to save the theatre. Melbourne City Council had been advised by the Heritage Council in July 2014 that the former vaudeville theatre, cinema and nightclub could have local heritage significance, but failed to respond quickly enough to introduce planning protections. The council this week resolved to undertake its first comprehensive review of heritage in the Hoddle Grid since 1985 to identify surviving, unprotected buildings.

Fairfax Media is yet to receive comment from Jinshan Investments. Visit this link for the tribunal full decision on the Palace Theatre.