A CONTROVERSIAL plan to build the Southern Hemisphere's tallest tower has been approved for Southbank.

At 388m, the 108-storey tower will be 91m higher than the Eureka Tower.

Planning Minister Matthew Guy has given the green light to the $600 million Australia 108 project, which will feature 664 apartments and a luxury hotel.

"I think this will be a magnificent addition to Melbourne's skyline. Australia 108 will be a signature development that will define Melbourne for decades to come," he said.

Mr Guy approved the building, at the corner of City Rd and Southbank Boulevard, despite initial opposition by Melbourne City Council and concerns it would cast a shadow over the Shrine precinct.

"The Shrine trustees are comfortable with this and the Government has accepted almost all of the council's permit conditions, and I think this will be a magnificent addition to Melbourne's skyline," Mr Guy said.

Designed by Eureka's architects, Fender Katsalidis, the centrepiece will be a 288-room, six-star hotel bursting out from a sky high triangle-shaped feature inspired by the stars of the Southern Cross.

Work on the project, which will create 300 construction and hospitality jobs, could start this year.

Mr Guy said such residential towers were consistent with government policy to concentrate high-density developments in defined areas.