Victorian authorities have launched legal action to shut down a Melbourne brothel after discovering a Chinese woman hidden in a secret cavity in one of its walls.

The startling discovery was made after police, immigration and consumer affairs officials searched the Paradise Playmates brothel, in Seaford, in December last year.

Brothel owner Jian Qing Xu leaves VCAT. Credit:Jason South

Sergeant Richard Farrelly told a hearing of the Victorian Civil and Administrative Tribunal on Wednesday morning that an earlier inspection of the brothel in November had failed to locate the secret cavity.

But during a second search based on intelligence that had been provided to the Immigration Department, Sergeant Farrelly said he carefully inspected a "well constructed" set of shelves attached to a second story wall.