Planning Minister Richard Wynne has slashed the height of a tower of more than 60 levels that Melbourne City Council had wanted to see built on the fringe of the Queen Victoria Market.

An apartment tower 125 metres high – about 42 storeys – will instead be allowed to be built in Therry Street, which borders the market near the corner of Elizabeth Street. The new tower will be across the street from the market's deli.

Mr Wynne appeared with lord mayor Robert Doyle and Premier Daniel Andrews at the market on Tuesday morning.

He said the decision to give planning approval for about 40 storeys instead of a higher skyscraper was a compromise balancing development around the market, where apartment projects are booming, and rejuvenation.