(AFP) A Sydney brothel has received the green light for a multi-million-dollar expansion which will see it become Australia's largest sex premises, with rooms featuring multiple beds and pool tables.

Plans to double the number of rooms at inner Sydney's "Stiletto" into a mega-brothel complex were knocked back late last year by the city council on the grounds that it was too big.

But the owners won an appeal to the Land and Environment Court this week, with Commissioner Susan O'Neill ruling the Aus$12 million ($12.2 million) development, including a wing for group bookings, should go ahead.

"The issue of a moral objection to the nature of the activities of a sex premises were raised by some of the public submissions and resident objectors," O'Neill said in the judgement seen by AFP Wednesday.

"As a sex premises is a legal land use and permissible... with consent, moral objections to the proposal are not relevant considerations."

O'Neill said Stiletto's operation to date had been assessed by the council as "acceptable and better than most" brothels in the city, and the proposed expansion to 40 rooms had addressed traffic and other concerns.

Stiletto promotes itself as "the world's finest short-stay boutique hotel and Sydney brothel". Its standard hourly rate of Aus$370 includes room, lady of choice and beverages.

It is open 24 hours each day of the year except for Christmas Day and boasts a "mixed clientele" which it claims includes top-end celebrities including movie stars, sportspeople and rock bands.

Prostitution in Australia is governed by state and territory laws with brothels being legal in some parts of the country, including New South Wales, while in other areas, such as the Northern Territory, they are banned.