Venue management said on Wednesday they would not show matches on the "Big Screen" at the square where hundreds of thousands of fans have gathered to watch World Cup matches for 20 years.
The move triggered a furious backlash from fans groups and soccer pundits, while Australia's soccer federation requested it be reversed.
Victoria state's top government official, Premier Jacinta Allan, said on Thursday the World Cup should bring people together, not keep them apart.
"I disagree with that decision – and I am overturning it," she said in a statement.
"There’s always a risk of bad behaviour from a few dickheads at every public gathering, but police and security will be on site, and there’ll be zero tolerance for it."
Video of fans celebrating wildly with every Australian goal went viral during the 2022 tournament in Qatar as the Socceroos advanced to the round of 16.
A number of incidents soured the celebrations, though, with some fans being injured by flares and projectiles.
Fans stormed barricades during the 2023 Women's World Cup semi-final between Australia and England, prompting management to cancel plans to screen the Matildas' subsequent third-place playoff at the square.
Australia play Turkey, Paraguay and the United States at the June 11 to July 19 World Cup.
Allan said the government would ensure the square in the heart of Melbourne's CBD had the support it needed to put on the matches.
"Now more than ever, people deserve more free stuff to do together in the city," she said.