A Melbourne Uber driver has won an appeal against a $900 fine for operating without accreditation, in a landmark test case which effectively legalises the service in Victoria.

Nathan Brenner, 54, was ordered to pay the fine and the prosecution costs of the Victorian Taxi Commission in December after being found guilty of several charges, including operating a commercial vehicle without a licence.

He was offered a lower fine on the condition that he promised the court he would not continue to work as an Uber driver.

But his lawyer told the court Mr Brenner could not make such an undertaking.

A County Court judge has now ruled in favour of Mr Brenner and struck out the charges and overturned the fine imposed by the Melbourne Magistrates Court.

Victoria's Taxi Services Commissioner has been ordered to pay Mr Brenner's legal costs in the appeal.

The commissioner, Graeme Samuel, said he was disappointed by the decision.

The commission regulates the Victorian taxi and hire car industry.

"It just reveals that there is a loophole or deficiency in the law that will have to be dealt with by government," he said.

Decision clears way for full competition with taxis

Professor Alan Fels headed a 2012 government inquiry into the taxi industry that recommended sweeping changes.

He is now a member of Uber's international advisory board and he welcomed the decision.

"This is a landmark decision. It potentially clears the way for full competition between taxis and ride-sharers like Uber," he said.

"That will be good for customers and the public."

Professor Fels said governments needed to get on with the business of regulating the ride-sharing service.

"Already hundreds of thousands of Australians are using Uber," he said. "It's obvious it's here to stay. We have to find a way forward of letting it stay and letting taxis compete with it."

Taxi Association slams 'comedy of errors'

But David Samuel, of the Victorian Taxi Association, the peak body representing the state's taxis, slammed the decision as "a comedy of errors".

He said the decision represented a clear failure on the part of the Taxi Commission.

"I think what we have to recognise is that this outcome fundamentally undermines the integrity of the framework of rules and laws that have been put in place regarding commercial passenger vehicle industry in Victoria," he said.

"At the end of the day, if this is the case, you might as well just throw the taxi and hire car bill out the window."

Issue of Uber regulation 'complex', Government says

The State Government is yet to regulate the ride-booking service and Public Transport Minister Jacinta Allan said the Government needed time to consider the findings.

Many Melbourne taxi drivers want Uber banned in Victoria. ( ABC News: Jean Edwards )

"It highlights the complexity of this issue, which we continue to give the detailed consideration it needs in the interest of Victorian passengers," she said in a statement.

Uber Victoria general manager Matt Denman urged the Government to act.

"We are delighted that our driver-partner Mr Brenner won his appeal today in the the County Court of Victoria, and was awarded costs," he said.

"The time for excuses is over. The Andrews Government needs to listen to the hundreds of thousands of Victorians who are choosing ride-sharing every week and introduce sensible, safety-based regulations without delay."

Angry taxi drivers held protests against the ride-booking service earlier this month outside Premier Daniel Andrew's electorate office, saying it was putting them under significant financial pressure.