A new public space larger than Federation Square would replace the open-air carpark at Queen Victoria Market under the latest proposed redevelopment of the 141-year-old landmark.

Melbourne City Council has now abandoned plans to dig beneath four of the market’s heritage sheds to create three levels of underground car parking and a service area for traders.

The latest proposal would still deliver 1000 car parks for market customers, which has long been a contentious issue, but they would be contained within a 38-storey apartment tower on the corner of Queen and Therry streets and a future development site on Franklin Street.

Lord mayor Sally Capp said once the new car parks had been built the existing asphalt car park would be turned into the biggest public square in Melbourne.