The peak body for Aboriginal community-controlled health organisations in Victoria has criticised the decision by the state government to abandon the opening of a second medically supervised injecting room in Naarm, arguing it "fails Victoria's most vulnerable people".

The decision by the Allan government on Tuesday came after a report - commissioned by the government in 2020 when they promised to open a second injecting room in the CBD - by former police commissioner Ken Lay, recommended a second room be open.

However, Premier Allan said there wouldn't be a second facility opened under her leadership. It is the second backflip by the government in less two months, following a decision to not remove reverse onus bail provisions for young people in March.

On Thursday the Victorian Aboriginal Community Controlled Health Organisation (VACCHO) and the Balit Durn Durn Centre said they were disappointed by the abandonment of the second supervised injecting room from the government, which they say denies potentially life-saving care to the most vulnerable members of the Victorian community.

Executive Director of the Balit Durn Durn Centre, Sheree Lowe, said medically supervised safe injection rooms save lives.

"The decision to not open a second medically supervised safe injecting room in the Melbourne CBD, goes against an abundance of compelling evidence, and expert advice," she said.

"Opting against establishing an additional site, perpetuates difficulties for many Community members in accessing potentially life-saving support."

Data shows Aboriginal and Torres Strait Islander Communities in Victoria experienced fatal overdoses at a rate more than three times higher than non-Indigenous people between 2018 and 2021.

Mr Lay had recommended a small, supervised injecting room with space for four to six people be set up in an area of high use in the city, and argued the facilities help to save lives.

The first room in North Richmond has been widely commended by health groups but has been criticised by some residents and commentators.

Ms Lowe said the facility "services a significant number of members of the Aboriginal Community, offering crucial services and pathways for additional treatment and support to combat addiction".

Penington Institute chief executive John Ryan advocates for treatment for drug users. His review into the North Richmond facility found the existing site had saved up to 63 lives and safely managed 6000 overdoses.

"The evidence tells us that we can cut the number of overdoses and deaths when people have access to a medically supervised injecting site," he told The Age.

The facility allows people who are addicted to safely inject in a space that manages the user's health, with specially trained staff on site and no illegal substances provided on the facility.

There are also programs available to help people more away from heroin.

Ms Allan said the government failed to identify a CBD location that wouldn't hurt the city's shopping areas and stigmatise vulnerable drug users but committed to continuing the operation of the North Richmond facility.

"This issue of the location has been a sticking point. We have been unable to find a location that strikes the right balance between supporting people who use drugs with the needs of the broader community," the Premier said.

"We could continue for years to search for a location. We've chosen to take action now, putting in place a statewide action plan that will save lives, that will support people right across the state and also build for the future."

Ms Lowe lamented the decision and said there was a long way to go to address the challenges of alcohol and drugs in Victoria.

"The stigma and discrimination that exists towards people who struggle with substance use compounds the complexities when seeking support," she said.

"We need a service system that is safe, accessible and responsive so that when the most vulnerable members of community reach out for help that the system can respond in a way that is healing not hindering."