The state's planning tribunal has overturned a City of Greater Bendigo decision to approve an apartment development in the city centre.
Real estate developer Scott Jackman said he is determined to transform the former All Saints' Anglican Church site on the corner of MacKenzie and Forest Streets into fourteen dwellings, despite VCAT refusing to issue a planning permit.
While commending the re-use of the site, VCAT member Tracey Bilston-McGillen said "any development of the remaining site must be considered within the context of the surrounding heritage buildings."
Access, acoustics and the level of development failing to satisfy the planning scheme's heritage framework were the three key reasons Ms Bilston-McGillen refused to issue a permit.
Mr Jackman said objectors to the proposal have made a concerted effort to obstruct the development and described VCAT's decision as "infuriating".
"I find it frustrating that objectors would take a singular, myopic view and I don't think its particularly community-minded," he said.
Andrew Reiner and Rhianwen Seiter brought the matter to VCAT and said they are pleased with its decision.
"While we were supportive of the adaptive reuse of this site, we are pleased that VCAT's decision agreed with us and our heritage expert, that the proposed development was not consistent with protecting the heritage value of the precinct," Mr Reiner said.
Mr Reiner and Ms Seiter own neighbouring hospitality venue Ms Batterhams, which is among the MacKenzie Quarters precinct.
The development site, in the heart of Bendigo's city centre, has become a hotspot for vandalism, according to Mr Jackman.
"We are constantly struggling with vandals entering the property and causing further destruction to it in its current form," he said.
"Only last week we had the police called twice."
A conservation management plan completed for the Anglican Diocese of Bendigo in 2012 outlined the history and significance of the site's buildings.
The All Saints' Church, built in 1856, is the oldest church in Bendigo and understood to be the location of the first Christian service held in the city.
Deemed to be of state significance are two of the church's vast number of stained glass windows and the associated school and Master's Residence, built in 1877, and linked by a Gothic archway, have also been assessed as significant.
Millson Developments proposed to demolish the east end of the church building and adapt it for residential use.
Of the fourteen dwellings and townhouses it sought to build, four would utilise the church, with additions on the north eastern elevation.
Three dwellings would be located on the corner of View and MacKenzie Streets, two dwellings would front MacKenzie Street and five dwellings are proposed in the northern part of the site.
Vehicle access to the site would be provided via MacGillivray Lane to a basement car park.
Mr Jackman said a new application is being developed to address the concerns raised by the VCAT member.
"I am committed to delivering a fundamentally significant development project for Bendigo," he said.
The Greater Bendigo Planning Scheme amendment C197, which relates to the site, said it provides an appropriate and significant new development opportunity on land prominently located in central Bendigo.
"The objective of the amendment is to allow and facilitate maximum possible flexibility of uses within the existing heritage building," the amendment said.
"Suitable uses could include boutique offices, boutique hotels, residential apartments, medical centre, community meeting spaces and the like."
The design and development overlay of the site states that design objectives of new developments "will blend with and are less prominent than the heritage buildings already on site and nearby."
Ms Bilston-McGillen said the design of the MacKenzie and View Street buildings are "visually prominent due to their height and gable form."
"They are not designed to be visually 'less prominent' than the Church or adjoining Master's Residence."
An apartment building located on the corner of MacKenzie and Forest Streets is proposed to have a gable presentation and constructed of a mixture of brickwork, glazing and tiles and is approximately 14.6 metres tall.
Mr Jackman said architects are devising plans to reduce building height, increase setback and address access concerns.