The decision, revealed as part of Thursday's state budget, represents a significant change of direction for the project.

The intention was to sell the GovHub to a private investor, which would manage the site for tenants including the City of Greater Bendigo.

But the government has decided it will cover the cost itself to keep the site in state ownership.

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Member for Bendigo East Jacinta Allan said the decision was not a sign the project's finances were in trouble.

"This has always been a terrific project for Bendigo, and that's why we continue to support it," Ms Allan said.

"The decision has been driven more by a decision about what is best value for the state and there's been a process that was undertaken that pre-dates COVID, that looks at state government accommodation.

"There's a better outcome for the state, for the state budget and, I would argue, for the community that it is retained as a state asset."

Ms Allan also reassured the City of Greater Bendigo that agreements in place for the organisation to use the building remained intact, despite the change of ownership plans.

"This is simply a change at the end of the construction part of the project where, instead of the building being sold to a private third party, it's being retained as a state asset."

The council's decision to agree to demolish its former offices at Lyttleton Terrace to make way for the GovHub was hugely controversial.

After a vocal campaign against the proposal, the sale was passed at a meeting in May 2020 with six councillors in favour, two against and one abstaining.

Councillor Andrea Metcalf - among those voting against - voiced concerns about a lack of community consultation and the sale of the land.

Former colleague George Flack also voted against, saying he believed the city was capable of borrowing funds to create a ratepayer-owned and operated building.

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Council chief executive Craig Niemann welcomed the news.

"It's good that it remains in public ownership," he said.

Once constructed, the GovHub will have space for about a thousand workers.

It was revealed last September that council's rent was expected to cost $35.6 million over 40 years.

It was expected the City of Greater Bendigo would be joined in the GovHub by state government employees from the Department of Jobs, Precincts and Regions, Department of Transport, Parks Victoria and the Portable Long Service Authority, among others.

An archeological dig at the site has unearthed a treasure-trove of historic items.

- additional reporting by Elspeth Kernebone, Nicholas Nakos and Peter Kennedy

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