The government says it will no longer place a cap on the number of houses on a block and instead introduce green space rules - with blocks up to 500 square metres requiring gardens on at least 25 per cent of the property.
The percentage will also increase with the size of the block.
"The Liberals' attempt at Plan Melbourne missed the mark. It virtually ignored housing affordability and didn't address the need to plan to manage population growth without allowing over-development," Planning Minister Richard Wynne said on Saturday.
But the opposition says the government's plan will actually increase the density of the city.
"This is going to tear away the quality of our suburbs," shadow planning minister David Davis told reporters on Saturday.
"They are actually stripping away protections and are forcing new density on whole areas of metropolitan Melbourne."