The decision brings to an end years of delays on the site, which began after a humble but overgrown London plane tree, and community efforts to save it, threatened to derail the project.

The application to vary the crown lease on the site, demolish the existing Capitol Cinema building and build the new hotel was conditionally approved by the planning authority on Wednesday.

The plans, lodged in February, proposed a six-storey, five-star hotel proposed for the site includes 43 basement car spaces, a ground-floor lobby with five cinemas and a restaurant linking to Franklin Street.

Under the proposal, the first floor of the hotel would include a 500 person-capacity ballroom, meeting rooms and a lounge and gym for hotel guests.

The remaining four levels would include 122 hotel rooms.

The first stage of the project on blocks 3 and 4 has already received approval and work began in May with the demolition of the old post office building behind the main cinema on Franklin Street.

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The site, which is owned by Sotiria Liangis' Liangis Investments Pty Ltd, will operate as one development after the second stage is completed.

"The Manuka Hotel development will be an iconic and prestigious building that is commensurate with its prominent location along Manuka Circle," the development application said.

The approval requires work to begin within three years after additional information and endorsements are provided to the planning authority.

The site has been mired in controversy since the original Capitol Theatre was demolished in 1980, attracting outrage from a young city wary of destroying its heritage.

Mrs Liangis bought the redeveloped cinema in 1989. The cinema, run by Greater Union, closed in May last year.

But it was the battle over a protected London plane tree, which had sprouted in the easement between the cinema building and the neighbouring old post office site, that threatened the site's revitalisation.

The tree was eventually removed two years ago after Liangis Investments Pty Ltd and the Conservator of Flora and Fauna reached a mediated outcome at the ACT Civil and Administrative Tribunal.

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