The community has been campaigning for a new school in the area for many years, and some students spend more than an hour on public transport to reach their nearest government secondary schools in Hawthorn, Collingwood, Elwood and Albert Park.

About 400 students are expected to attend the school, and Premier Denis Napthine said potential sites had been identified.

"We are seeing significant population growth in these areas, significant increases in enrolments in local primary schools and the challenge is where those students go for government secondary education," Dr Napthine said.

It is understood one of the possible sites for the new school is on a portion of land at Melbourne Polytechnic TAFE, which has taken over Swinburne University’s Prahran campus.

But a shortlist of the sites will not be released to keep down the cost of any land that may need to be purchased .

A taskforce lead by Prahran MP Clem Newton-Brown, who is also parliamentary secretary for education, will evaluate these locations and choose the best site.

Dr Napthine said he expected the new secondary school would be operating before the 2018 state election, although it may initially take enrolments from just years 7, 8 and 9.

Just last year the Education Department released a report which showed there was insufficient demand for a new secondary school in the area – but Education Minister Martin Dixon said on Thursday there was strong demand for the new school.

"The numbers of students are there to establish a government secondary school in this area".

Education Minister Martin Dixon said it had been difficult for local students who had to scatter to neighbouring suburbs if they wanted government secondary school education.

"No matter which school they go to it usually involves two means of transport to get there, so the young people get disconnected with their community."

"This is a great outcome for a community that has been working very hard for a number of years."

Mr Dixon said the school would be "exciting and unique" but "would not be one of those five hectare schools".

The announcement was made at South Yarra Primary School, which was decorated in blue Clem Newton-Brown balloons. The Premier said "special circumstances" allowed the promotional material to be displayed at the state primary school.

Mr Newton-Brown is facing a tough fight to retain his seat, which was held by a 4.3 per cent margin at the last election.

"The local community have told me loud and clear that we need a local secondary school for our students and I am extremely proud of the effort that has been put in by so many," he said.

South Yarra Primary School principal Peter Clifton welcomed the announcement and said access to quality state schools was vital.