In 1907 fire destroyed all the buildings at Parliament, except for the library. Deciding what to do next was a difficult task, made harder by the fact that the House had to go about its business in the cramped old Government House, located across Sydney Street.
John Campbell of the Public Works Department prepared proposals for the rebuilding of Parliament for either side of Sydney Street. A joint select committee of the House and Legislative Council in 1908 considered the proposals and recommended that the surviving library building be remodelled and greatly extended to provide for departmental offices that would replace the wooden departmental building on Lambton Quay. The committee suggested the demolition of the departmental building – regarded as a fire risk and too small to house Wellington's burgeoning army of civil servants – to make its valuable site available for commercial use; an arcade of shops and offices had been proposed for the site. Fortunately, the wooden building survived, and since the 1990s it has been used as the Law Faculty of Victoria University of Wellington.
The committee recommended that a very substantial new building be constructed for Parliament on the Government House site. Not everyone was thrilled: Leader of the Opposition William Massey believed this the 'maddest, wildest, and most extravagant scheme that we [in Parliament] have had any experience of'.
By 1911 the government had secured title to the portion of Sydney Street between the library and old Government House, to link the two sites and expand the options for a new building. In February that year Prime Minister Joseph Ward announced a competition for designs among New Zealand architects. Thirty-three entries were received, with the winning design (from government architect John Campbell) selected by Colonel Vernon, former government architect for New South Wales. Another of Campbell's entries won fourth place, and the two were blended for the final building design.
The idea was to have a new Parliament House in brick faced with stone in the Edwardian neoclassical style, which was then popular for grand public buildings. It was to be built in two stages on a big plateau created between the library and old Government House. The first stage, including both chambers, would be built without interfering with old Government House. The second stage, including a huge new library, would extend the building south to replace it.
The foundation stone was laid in March 1912, but cost got in the way from the start. When William Massey became prime minister later that year, he reluctantly let the first stage go ahead, but said no to the roof domes and ornamentation.
Tenders for the first stage of the building – the central axis and the northern wing, without central dome and cupola – were not called until the second half of 1913, and construction commenced early in 1914. Staged construction of the building was intended to allow the continued use of old Government House until the new House of Representatives and Legislative Council Chamber were completed.
With the intervention of the First World War and a consequent shortage of building materials, and difficulties in quarrying marble to the standards required, what should have been a two-year contract was not finally completed until mid-1922, although the new chamber of the House of Representatives was in use from late 1918. In the face of a serious recession and fiscal crisis in the early 1920s, the second stage of the building – intended to house Bellamy's (Parliament's restaurant and bar for politicians), the library, ministerial offices and the Crown Law Office – was deferred indefinitely. Old Government House, Clayton's 1871 building, continued to serve as the 'Bellamy's Block' until it was finally demolished to make way for newer government buildings in the late 1960s.