But Heritage Victoria has issued a permit to dismantle the derelict heritage-listed building at 43 Aitken Street, with the parts to be "stored" at the owner's discretion.

The dwelling, believed to date from as early as 1842, was added to the Victorian Heritage Register in 2007.

The register states the block was gazetted in 1837, with the first reference to a house on site in a council rate book of 1856.

However, historian Fay Woodhouse dates 'Pope's House' (named in honour of former owner William Pope) back to 1842-43. Heritage Victoria acting executive director Jim Gard'ner said retaining the building on site would have caused undue economic hardship to the owner, Hoppers Crossing man Gary Page.

"In its decision, Heritage Victoria also took into account the fact that due to its derelict state and the lack of evidence or records, accurate reconstruction or restoration of the building was not possible," Mr Gard'ner said.

Preserve Old Williamstown president Patsy Toop labelled the decision disappointing.

"It's disappointing and presumably we'll need to negotiate with Mr Page about the remains of the building so that it's properly cared for."

After an application to demolish the building was lodged on March 23, Preserve Old Williamstown, Williamstown Historical Society and concerned members of the community rallied to retain Williamstown's oldest house on the site or to have it restored elsewhere as a priceless "national monument".

The property has been with the Page family since 1964, when Mr Page's father bought it as a storage site for his oil drum recycling business. It sits on an 839-square-metre block and is expected to fetch more than $1million when auctioned as a development site.

Under the permit conditions, all fabric and any significant archaeological items are required to be carefully removed and catalogued.

The dismantling is to be recorded for an archival record to be lodged with the State Library, National Trust and Williamstown Historical Society.

Mr Gard'ner said no suitable site had been offered for the building.

Mr Page could not be contacted on Tuesday.