The decision has been welcomed by Redland City Council, but rejected by conservation groups angered at the impact on critically-endangered wading birds.

In a statement on Tuesday, the minister said the proposed development needed to undergo "a comprehensive environmental assessment under national environment law".

"This decision has been made because the proposal is likely to have a significant impact on the Moreton Bay wetland, and nationally listed threatened and migratory species," Mr Frydenberg said.

The project's proponents plan to add 3600 units and a marina development to Toondah Harbour, which is a gateway to North Stradbroke Island.

"The main change in the new proposal, compared to that submitted in 2015, is to reduce the size of the development and to increase a buffer between the development and the shorebird roost site at the adjacent Cassim Island," Mr Frydenberg said.

The $1.3 billion project has been delayed six times before reaching this stage because of the potential impact of dredging the Toondah Harbour on the feeding grounds of a number of world-recognised wading birds.

Toondah Harbour is protected under the internationally recognised Ramsar Convention to protect wetlands.

The Ramsar Convention was named for the Iranian town in which the convention was signed in 1971.

The Walker Group won the tender from the Queensland government in May 2014 and has spent three years getting a satisfactory project proposal to the federal government.

In June 2015, the project was endorsed by the Queensland government, but approval must come from the federal government.

Last month, the Walker Group made changes and proposed adding a 200-metre buffer zone around Cassim Island, within Toondah Harbour.

The island is used a high-water roost for four species of migratory sea birds.

Redland mayor Karen Williams welcomed the news the project could now move to the environmental impact study stage.

"We have always supported such scrutiny, and believe Walker Group should have the opportunity to demonstrate the acceptability of the proposal through an environmental impact assessment," she said.

"This is a sensible approach and proves commitment to both the Redlands and our environment,' she said.

"I would also like to highlight that the Redlands community will have the opportunity to have their say during the environmental impact assessment phase."

Birdlife Australia, Humane Society International and the Australian Conservation Foundation say the project should not go ahead.

Birdlife Australia spokeswoman Connie Warren said Toondah Harbour was one of the most important areas in Australia for the critical endangered Eastern Curlew.

"Not only will this development destroy critical feeding sites for at least 30 bird species, including the Eastern Curlew, it will reclaim almost 50 hectares of wetland protected by five separate international treaties, including the Ramsar Convention," she said.

"In designating a wetland as a Ramsar site, countries agree to conserve these internationally important wetlands and ensure their wise use."

Humane Society International senior program manager Evan Quartermain said: "Ramsar sites are recognised as being of significant value not only for the countries in which they are located, but for humanity as a whole."

"They should be completely off limits to destructive development," he said.

It was revealed in February the Walker Group gave donations to both major political parties, when information was released by the Australian Electoral Commission.