Swedish retail giant H&M is setting up shop in Melbourne's iconic GPO building.

The owners of the 150-year-old building, property fund managers ISPT, announced on Wednesday the retailer had chosen the GPO for its much-anticipated first Australian store.

Industry sources speculated H&M could be the new tenant of the iconic building. Credit:Pat Scala

The new store, due to open in mid-2014, will become H&M's Australian flagship outlet and one of its biggest in the world, occupying three floors and almost 5000 square metres of the heritage listed GPO building.

Fairfax Media reported in March that dozens of GPO retailers were being kicked out of their stores to make way for a large international retailer. While ISPT would not confirm the identity of the retailer at the time, industry sources speculated H&M could be the new tenant.