A major capacity upgrade of one of Melbourne's busiest rail corridors has been dumped in favour of a different project, amid claims the planning was botched by the former Victorian government.

The Napthine government's multi-billion-dollar upgrade of the Pakenham and Cranbourne services aimed to remove four level crossings, upgrade stations and add high-capacity trains to the line.

But under the Andrews Government's new plans, the new project will include the removal of nine level crossings, to be completed by the end of 2018.

It will also include 37 new trains instead of the 25 trains promised by the former government, increasing peak-hour capacity by 42 per cent.

The Government will have to pay around $30 million to the consortium that was going to build the project to pay for its intellectual property on work already carried out, including design work for new trains and level crossing removals.

It said there would be no contractual implications because a formal contract for the upgrade had not been signed.

Premier Daniel Andrews said the project agreed to by the former government was not up to scratch, and his Government was going back to the drawing board.

"This is a very different project, it's bigger, it's better and we're being completely up front about this," he said.

"We're very proud to say 'we're not signing contracts'."

The upgrade to the Pakenham and Cranbourne rail lines was the first proposal committed to by the former government under the controversial "unsolicited proposals" policy, which allowed the private sector to propose infrastructure projects to the Government.

The Victorian Employers Chamber of Commerce and Industry welcomed the new plan, saying the project should create jobs and improve commuter travel times.

Coalition's plan 'under-funded, didn't make sense'

The Government said its predecessor's proposal was under-funded and plagued with technical problems.

It said the former government also secretly dumped the high-capacity signalling upgrade, confirmed in a "secret" letter to the consortium that was going to build the project shortly before last November's state election.

The new project will also not include high-capacity signalling on the Pakenham and Cranbourne lines, but Mr Andrews said the Government would trial new signalling technology on the Sandringham line, which is a quieter line.

"It just doesn't make sense to run this (trial) on your busiest line," he said.

"The best place to do this is on the Sandringham line, that's what the technical experts are telling us."

But the Greens said signalling needed to be included in the upgrade.

"Ultimately, if we want to see more trains run more frequently, high capacity signalling is the answer to that," transport spokeswoman Samantha Dunn said.

"There needs to be a process in place that delivers that for commuters who are standing for far too long on overcrowded trains."

The Government claimed the previous project had blown out in cost, from $2.5 billion to $3.16 billion and would have been severely delayed.

The Government would not say how much the project was likely to cost because it would go to the market, but said it would be more expensive than the original proposal because it was a larger project.