A secret report prepared by the state government's own experts warned the plan for Sydney's light rail was talked up without knowing the "hidden realities" of the project.

The report, titled Lessons for Light Rail, identifies a range of problems, from rising costs to the design drawings being "dumbed down" and major stakeholders not involved in the early planning.

Light rail construction in the CBD. Credit:Jessica Hromas

It says the project for a light rail from Sydney's CBD to the eastern suburbs would be hit with "high prices and design delays" as a result of "onerous contract modifications" and the design process should have been more detailed with a longer "evaluation and negotiation period".

The report has emerged as the government remains locked in a legal battle with the Spanish contractor building the project.