Arson squad detectives are investigating a fire yesterday (July 11) which caused A$1 million ($860,000) worth of damage to Melbourne live-music venue the Palace.

Detective senior sergeant Phil Hubbard said police suspect that at least three people were responsible for starting the fire. Witnesses say the incident started about 3.30pm at the back of the club. More than 20 fire engines were deployed to the scene, and brought the blaze under control in an hour.

Hubbard confirmed detectives have interviewed several previous tenants of the building and those who have access to the property.

The Palace, in the suburb of St. Kilda, had been closed since July 1 after a two-year court battle between the state government and Bradto, its former operator, which claimed its lease had 35 years to run.

St. Kilda mayor Janet Bolitho said the local council planned to use the Palace as a live music venue for another 12 months. Then, a decision will be made on whether to demolish the building.

Bradto has since bought the Metro nightclub in the Melbourne central business district.

Police officers were already investigating an act of vandalism that occurred a few days after the Palace was closed.

Part of the Palace dance floor and some walls were smashed, according to officers, and the walls daubed with graffiti. The local council had, as a result, disconnected water and electricity, put fencing around the building, and hired two security guards to protect the club.

The state government has taken possession of the 35-year-old Palace as part of a A$300 million ($258 million) redevelopment of the St. Kilda waterfront area, which is scheduled to start in June 2008 to finish by 2010.

As previously reported, the redevelopment will see the neighboring heritage-listed Palais Theatre get an A$20 million ($17.2 million) refurbishment. It will also lead to the construction of new clubs such as the U.K.'s Ministry of Sound, and version of Sydney-based jazz club The Basement, along with shops, restaurants and a supermarket. The Palais Theatre was not hurt by the Palace's fire.