Strathfield in Sydney's inner west has missed out on a link to a $3.5 billion light rail line after the state government opted to extend the second stage to suburbs north of the Parramatta River before ending it at the Olympic Park precinct.

The "preferred route" for the second stage of the line runs from Rydalmere through Ermington, Melrose Park before crossing the Parramatta River and passing through Wentworth Point and on to Olympic Park.

The government said the 9-kilometre second stage could comprise up to 12 stops but has yet to reveal where they will be located or what the project will cost.

It led to Labor and business groups demanding the government match the release of its preferred route with a funding commitment.