A bid to partially demolish Melbourne’s Federation Square to make way for a controversial Apple flagship store has been rejected by Heritage Victoria.

Plans to bulldoze part of the Yarra Building for the tech giant were revealed in 2017, with the state Labor government’s approval.

But Heritage Victoria on Friday published its rejection of the application, saying the demolition and new building would result in an “unacceptable and irreversible detrimental impact on the cultural heritage significance of Federation Square”.

This would be because the new building would be visually dominant, detract from the “design language” of the square and diminish the public square, the decision outlined.

“While we are disappointed we’re no longer able to pursue our plan for Federation Square, we remain committed to serving our customers in Melbourne and across Australia,” Apple said in a statement.

Heritage Victoria acknowledged its refusal would have an economic impact, however noted there was no sufficient evidence the proposed development was needed to ensure the viability of Federation Square as a whole.

“The negative impacts of the proposal are not outweighed by the benefits, including the economic benefits,” it said.

The state government has enlisted government architect Jill Garner and former managing partner of Ernst and Young Tim Eddy to review how Federation Square looks, is funded and operates.

“Since it’s opening in 2002, Federation Square has hosted creative events and world leading attractions,” tourism minister Martin Pakula said.

“The review will ensure this much-loved space can thrive as a civic, cultural and commercial hub for years to come.”

The square was referred to Heritage Victoria for protection after it was announced the government wanted the Apple store to go ahead.

An interim protection order was put in place in December until the end of August, allowing for Heritage Victoria to consider the development proposal.

A final decision is expected in mid-2019.

The National Trust, which is championing the heritage listing, has celebrated the Apple development rejection.

‘We do not oppose commercial activation and development at Federation Square which respects its cultural and architectural significance, however the proposal fell far short of meeting these aims,” the National Trust Victoria chief executive, Simon Ambrose, said.