Owner Jim Hogan told the Bendigo Advertiser on Wednesday night that he was considering turning the building into an apartment block, which would be subdivided and sold off to private buyers.

Mr Hogan's announcement comes after the City of Greater Bendigo said it was going to lodge an application to the Victorian Civil and Administrative Tribunal challenging the legality of Mr Hogan's proposal for 20 extra poker machines.

Mr Hogan had originally planned a $4-million redevelopment of the hotel, but he said he may consider abandoning the project if he had to spend thousands of dollars on a lengthy legal process.

"It's political correctness and it costs a lot of money," he said of the potential VCAT appeal. "It puts a dampener on business people like myself to invest.

"You just think, 'Forget about it'.

"It's very hard to do business in Victoria."

The hotel's application for 20 additional poker machines was recently approved by the Victorian Commission for Gambling and Liquor Regulation.

But City of Greater Bendigo planning and development director Prue Mansfield said that before the council issued the hotel with a planning permit for the machines, it needed to address laws that prohibit poker machines in strip shopping centres.

"It's a technical legal question," she said.

The 2007 City of Greater Bendigo Gaming Policy Framework prohibits, "The locating of gaming venues in strip shopping centres and shopping complexes."

"Venues should be located proximate to; but not within the retail core activity centres in the City of Greater Bendigo and located away from vulnerable communities," it states.

Mr Hogan has said previously that he planned to use revenue from the extra machines and tax breaks to fund the redevelopment of the hotel.