The Port of Melbourne Corporation plans to dredge 23 million cubic metres from the bay to allow bigger and heavier ships to enter Melbourne.
Mr Jennings said the project could proceed, subject to three conditions: a $100 million environmental bond, $6.65 million in environmental initiatives and the appointment of an independent environmental monitor.
“I am satisfied that concerns about any effects of deepening the main shipping channel in Port Phillip Bay can be addressed through the environmental strategy and plans attached to the project,” he said.
“The EMP (Environmental Management Plan) that has been prepared for the project is enforceable by law and the environmental safeguards that it provides are unprecedented for dredging in Australia.”
Premier John Brumby is confident dredging can start next month, despite opponents launching court action to block the $763 million project from going ahead.
Planning Minister Justin Madden approved the project in October, but it still needs to be signed off by federal Environment Minister Peter Garrett.