Victoria's regional rail network will soon get a $1.7 billion overhaul after an agreement with the Federal Government.

Victoria has become the first state to sign up to the Inland Rail freight project, which will create a direct rail freight connection between Melbourne and Brisbane capable of moving double-stacked containers.

Victorian Public Transport Minister Jacinta Allan said, in return, the State Government had unlocked money to upgrade the state's aging regional rail network.

The Regional Rail Revival project includes improvements for the Gippsland, Warrnambool, Echuca, Bendigo and Ballarat services, as well as a new Surf Coast rail project to Torquay.

"These are much needed works that will provide important track and signalling upgrades to regional passenger lines across regional Victoria, allowing us to run more frequent and reliable trains," Ms Allan said.

"It's funding that will see an upgrade to every single passenger line … we will now be able to significantly accelerate and ramp up the construction program."

The Andrews Government will contribute $150 million, Ms Allan added.

Services from areas like Geelong are often overcrowded during morning and afternoon peak. ( ABC News: Cameron Best )

North East line to be used for inland rail

Victoria has been pursuing the Federal Government for money for regional rail upgrades following the privatisation of the Port of Melbourne in 2017.

The Andrews Government claimed it was entitled to a refund of close to $1.5 billion for the sale under the asset recycling program, but the Federal Government asserted it had missed a deadline.

Deputy Prime Minister Michael McCormack said the inland rail project would create jobs and spark investment in regional Victoria.

"Once complete, Inland Rail will create thousands of jobs nationwide and return $16 billion to the national economy during the delivery phase and the first 50 years of operation," he said.

Victoria's North East Rail Line, which currently carries both passenger and freight trains, will be used for the inland rail project.

Mr McCormack said he would work with his New South Wales and Queensland counterparts to encourage them to sign up to the project.

"This is important, it is nation building and … [we want] this project to proceed as quickly as possible," he said.

"Obviously it's going to take quite some years to build. We also now need to obviously get the political happenings underway and make sure we get these intergovernmental agreements signed and the project underway."

Trains not track the problem: lobby group

V/Line chief executive James Pinder welcomed news of the deal.

"It's fantastic news for V/Line, more importantly, it's fantastic news for V/Line passengers that use that North East line," he said.

"It's great news for that region and I know it's something they have waited for for quite some time."

Bill Trail, the founder of the Border Rail Action Group, said while the multimillion dollar track upgrades were welcome, the line desperately needed new trains.

In January, the North East Line saw just 56.2 per cent of services arrive on time.

"There's nothing substantially wrong with the track," Mr Trail said.

"The solution at this point regardless of the track's condition at present is a new fleet replacement — simple as that."