The Boeing 737 (VH-TAF) had been cleared to taxi to and hold short of runway 16. Approaching the hold point at runway 16, the pilot switched to Tower frequency and advised that he was ready. The controller replied with 'Good morning'. Mistaking this transmission for 'line up' the pilot proceeded onto the runway. As he taxied across the hold line he noticed a light aircraft about 2-3 NM on final approach to runway 16 and heard the tower controller clear the aircraft to land. The pilot then asked the controller to confirm that he had been given clearance to lineup. The controller responded in the negative and cleared VH-TAF for an immediate takeoff. The landing clearance of VH-XLA was cancelled and the pilot advised to continue the approach. After VH-TAF became airborne, VH-XLA was cleared to land.