A piece of Banksy street art worth tens of thousands of dollars has been accidentally destroyed by a builder in Melbourne.

Ruined: Banksy's parachuting rat. ( ABC TV )

The parachuting rat was painted by the British artist about 15 years ago on a wall in Prahran.

Local residents say they were horrified to realise the stencil had recently been ruined when builders smashed a hole in the wall to make way for pipes for a new cafe.

"They have unconsciously taken a part of Melbourne, taken a part of history which is really important to do with street art, and just destroyed it without even thinking about it," local business owner Tina McKenzie said.

She says she cannot believe they have sawn through the side of the building without consulting anyone on the street.

"They wouldn't even know that that's a $50,000 piece of art they've just sawed through, possibly even more," she said.

But she says Bansky, who she has had contact with over the years, would probably just laugh it off.

"I've had contact with [Banksy] over the years and he paints with a friend of mine in New York, but he would probably laugh that there's so much attention around something that he's just done as a part of his lifestyle every day," she said.

Residents are urging the local council to set up a register of street art to prevent this happening again.