The NSW State Government has settled a year-long legal dispute with construction company Acciona over Sydney's light rail project, agreeing to a $576 million compensation payout.

Key points: With today's compensation payout, the total bill for the light rail project will be more than $3 billion

With today's compensation payout, the total bill for the light rail project will be more than $3 billion The payout is part of a long-running dispute with Acciona over the complexity of the project

The payout is part of a long-running dispute with Acciona over the complexity of the project The first part of the project will be finished in December, with the second part finished in March

The final payout, confirmed by the State Government on Monday morning, will take the trouble-plagued project's total cost to more than $3 billion — almost double the original price tag predicted by then-transport minister Gladys Berejiklian in 2012.

Acciona sued the NSW Government for misleading or deceptive conduct in April last year. It was initially chasing $1.2 billion over issues relating to the cost of digging up and replacing Ausgrid powerlines for the project, which has turned Sydney's George Street — and parts of Sydney's eastern suburbs — into a construction site.

The NSW Government accused the company of ordering a go-slow at the time, pushing the already delayed project back further.

Of the $576 million payout confirmed on Monday, it is understood $129 million will be held back until construction deadlines are met.

The first portion of the light rail, to Randwick in the city's east, must be complete by December.

The second leg of the project, to the south-east suburb of Kingsford, will need to be finished by March.

The project was supposed to be finished before the March state election.

George Street in Sydney's CBD has been turned into a construction zone. ( AAP: Dan Himbrechts )

The agreement clears $1.5 billion the company was seeking in claims, including the $1.2 billion it was originally suing the State Government for.

Transport Minister Andrew Constance said it had been a "complex negotiation" but the agreement reset the relationship between the parties.

Opposition spokeswoman Jodi McKay said the project cost was "extraordinary" and a sign of the Government's mismanagement.

The 12km light rail project runs from Circular Quay to Randwick and has caused mass disruption to businesses and foot traffic in some of Sydney's busiest areas, triggering an inquiry last year.