The Victorian state government said it had issued a new exhumation licence for Kelly's remains, meaning a property developer behind the Pentridge Prison site where he was buried will be forced to hand over the skeleton.

The developer of the site in Melbourne had wanted to use Kelly's remains in a museum or memorial.

"The Kelly family will now make arrangements for Ned's final burial," said Ellen Hollow, the great- granddaughter of Kelly's sister, Kate.

Considered by some to have been a cold-blooded killer, Kelly was seen by others as a folk hero and symbol of Irish-Australian defiance against the British authorities.

After murdering three policemen, he was captured in Victoria in 1880 and hanged at Old Melbourne Gaol in November that year.

But his body went missing after it was thrown into a mass grave.

The bodies in the grave were transferred from the jail to Pentridge Prison in 1929 and then exhumed again in 2009.

Kelly's remains were formally identified last year, minus the skull, which remains missing.

Kelly became an outlaw two years before he was hanged, taking on corrupt police and greedy land barons.