The unlawful demolition of a Carlton pub has prompted outrage from local and state governments, community and heritage experts.

The popular watering hole, which is located opposite the Melbourne University law school, was demolished without obtaining a permit, and without gaining approval for a new building on the site. The demolition followed part of the pub being destroyed in a fire.

"This is a very, very serious matter – that building was protected by a heritage overlay," Lord Mayor Robert Doyle told The Age.

Planning Minister Richard Wynne has referred the matter to the Victorian Building Authority, and Opposition planning spokesman David Davis said new penalties could be considered if current fines were insufficient. New penalties could go so far as to include banning future building permits or forcing the owner to rebuild the facade.

Heritage consultant Rohan Storey told The Age any fines issued needed to make such unlawful activity unprofitable.

A company belonging to Stefce Kutlesovski and Raman Shaqiri, 160 Leicester Pty Ltd, bought the pub for $4.76 million in August last year. Shaqiri is part-owner of the demolition company that completed the unlawful work.

Melbourne University law students have launched an online petition demanding the owners rebuild the popular venue. Their site has been a focal point for members of the community to vent their opposition to the demolition.

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