In the coming years the former heavy-industrial suburb will be transformed into Melbourne's newest high-rise apartment precinct. But the National Trust is warning against the perception the area is a "blank canvas" ripe for the bulldozer.

The heritage group believes that a 1940s factory in Port Melbourne, now earmarked for new townhouses, was first constructed for the Department of Munitions to build prototypes for Australia's first armoured tank.

A report commissioned for the National Trust concluded the 19 Salmon Street factory was, between 1941 and 1943, an experimental tank depot which produced fully sized timber mock-ups and helped develop the Australian Cruiser Mark 1 "Sentinel" tank.

This theory is backed up by extraordinary archive footage from April 1942 that shows former Prime Minister Robert Menzies and senior army officials in Fishermans Bend, inspecting Australian-made armoured vehicles.

A fleet of tanks, gun carriers and scout cars are pictured bumping across the sand dunes, all heading in the same direction.

In the soundless video, a Sentinel tank is shown accelerating with some reluctance over a small ridge. The Australian government had planned to build hundreds of the machines, but only 65 would end up being produced in Sydney, and none ever saw active service.

"Ultimately, the Australian's government's wartime tank building program was not a success," concluded the heritage consultants.

Nonetheless the report concluded the Salmon Street factory should receive heritage recognition for its unique associations to the wartime effort.

In the latter part of the war, the factory was used by the maintenance division of the Department of Aircraft Production.

And it had its heyday from 1946 to 1972 as the Rootes and then Chrysler car factory, employing hundreds of local workers and producing thousands of vehicles, including Commer vans and Dodge Phoenix and Hillman cars.

Now a car showroom, the next incarnation for the factory could be a residential village.

A plan to demolish the building and replace it with 179 townhouses has been submitted to Victoria's Planning Department by two investors from Sydney.

The National Trust is not opposing all development on the 2.2 hectare site. Instead the group's  manager Paul Roser called for the original Art Deco style administration building to be retained, as well as a sample of the factory.

"We think it would be terrible to lose all evidence of something that had so much historical significance for Australia's wartime program," he said.

"At the same time Fishermans Bend was a huge car manufacturing area and we are in danger of losing all evidence of that."

Mr Roser also said the state government should commission a comprehensive heritage study for Fishermans Bend, to identify historically significant buildings before they were demolished.