The Federal Government has confirmed it will build Sydney's second airport at Badgerys Creek, after Sydney Airport declined their first option to take on the project.

Key points: Sydney Airport had first right of refusal to build the second airport in western Sydney

Sydney Airport had first right of refusal to build the second airport in western Sydney The company said it would be too great a financial risk for their investors

The company said it would be too great a financial risk for their investors Malcolm Turnbull said details of the Government's plan for the new airport would be released next week

The Sydney Airport Group cited the "risks" on monetary return for their investors as its main reason for declining the Government's offer.

It said it considered the likely demand and growth potential, construction costs, risk profile and financial returns of the airport before turning the offer down.

In a statement, Prime Minister Malcolm Turnbull said details of its plan to build the new airport would be announced in the federal budget next week.

"It is a vitally important project for Western Sydney, for Sydney, and the nation, which is why the Coalition Government ended decades of indecision by committing to the project in 2014," he said.

Urban Infrastructure Minister Paul Fletcher told the ABC the new airport was vitally important given Sydney Airport would soon run out of capacity.

Map Badgerys Creek map

"It is very important that Western Sydney airport gets built and we've got a clear plan to do it, this is an important milestone," he said.

Mr Fletcher did not rule out private investment in the airport further down the line.

"Brisbane Airport right now is expanding significantly, building a new runway at a cost of $1.35 billion … that's all private capital, taxpayers don't have to fund that," he said.

"In due course, it will become sensible for that to happen."

Already a 70-year proposal

State and federal leaders have been arguing about the need to build a second Sydney airport since the 1940s, a parliamentary paper says.

Badgerys Creek in far-western Sydney was put forward as a possible site in the 1980s, and a Transport Minister turned the first sod on the site in 1992.

There was also ongoing controversy over whether it was appropriate for Sydney Airport to run both sites, with the company having negotiated in 2002 the first right of refusal to build the second airport.

Sydney Airport made the announcement it would not develop the Western Sydney Airport (WSA) in an ASX release on Tuesday.

"Sydney Airport's decision not to accept the WSA [notice of intention] on the terms provided is in the best interests of our investors who represent millions of Australians through their superannuation funds," managing director and chief executive of Sydney Airport Kerrie Mather said.

"Despite the opportunities that WSA will present, the risks associated with the development and operation of WSA considerable and endure for many decades without commensurate returns for our investors."

The release said Sydney Airport still had three months left to review the material terms of the WSA operation, whether the Federal Government elected to run the airport or offer terms to another party.

"If the terms are more favourable, Sydney Airport would have the option to develop and operate the airport on those terms," the ASX release said.

However, the release noted the Federal Government had advised Sydney Airport the deal would mirror its previous offer that the company declined on Tuesday.

Federal Government to step in to run airport

Deputy Prime Minister Barnaby Joyce weighed in saying he "wasn't surprised" Sydney Airport had declined the first option.

"I always thought they'd play us along as long as possible and then say no," Mr Joyce said.

A draft design of the Western Sydney Airport at Badgerys Creek. ( Supplied: Department of Infrastructure and Regional Development )

He hinted at the Federal Government retaining control of the project on Tuesday morning.

"But we want to build Badgerys Creek. That's one thing that I'm absolutely certain about, the Prime Minister and I are absolutely one on this," Mr Joyce said.

"Badgerys Creek is vitally important, it's a vital part, a piece of infrastructure, and now that the Sydney Airport corporation says that they're not interested, we'll get to work and make sure we find people who are."

NSW Premier Gladys Berejiklian said her Government would support the Federal Government in ensuring the new airport was built as quickly as possible.

"I think that what matters to the community is that the airport is built," she said.

"So long as the fees are accessible and so long as the airport is built as quickly as possible, I think the community wants to see the project come to life as opposed to worrying about who builds and operates it."

Second airport still controversial for locals

The Western Sydney Airport, which is earmarked for a site at Badgerys Creek in far-western Sydney, has been mired in controversy since its inception.

Some local residents have opposed eviction to make way for the airport.

After the Federal Court dismissed their appeals court in March, a dozen residents have filed their case to the High Court.

The residents' legal team expected to hear in the coming months whether the High Court's full bench would hear the matter.