The City of Melbourne will spend more than $12 million creating two new open spaces in the CBD and Southbank.

Upgrading Elizabeth Street between Flinders Street and Flinders Lane is part of the plan and will cost the council $1.5 million.

Deputy Lord Mayor Arron Wood said the project would transform the Flinders Street Station end of Elizabeth Street into a pedestrian-friendly boulevard.

"When you look at Elizabeth Street it should be one of Melbourne's great boulevards, and it's not," he told ABC Radio Melbourne's Jon Faine.

Elizabeth Street will be closed to southbound traffic at Flinders Lane, with a single-lane road carrying vehicles turning north from Flinders Street.

Council data shows more than 9,300 pedestrians use the area in the peak between 8:00am and 9:00am, compared with just 73 southbound motor vehicles.

The council will hold community consultation on the project in June, with construction expected to start later this year.

The funding was announced ahead of this morning's release of the council's 2017-18 draft budget.

New parkland for Southbank Boulevard

The Southbank Boulevard project is the largest street upgrade ever undertaken by the City of Melbourne. ( Supplied: Melbourne City Council )

The draft budget, to be finalised in June, also provides $11 million for the first stage of the $35 million Southbank Boulevard project.

It is the largest street upgrade ever undertaken by the council and will create 2.5 hectares of public space in Southbank, Melbourne's most densely populated suburb.

"To put it in perspective, just the bit outside the ABC studios ... will be equivalent to the size of City Square," Councillor Wood said.

"If we had to purchase that [land] on the open market it would be about $140 million, so this is a really wise way of delivering new open space."

A section of Dodd Street neighbouring the Victorian College of the Arts will be redesigned to cater for street performances and public events.

Southbank Boulevard will be realigned so as to create new parkland while carrying the same amount of traffic.

"You'll see new bike lanes, you'll see outdoor [play] equipment, you'll see a lot more street planting to cool the city," Councillor Wood said.

$29 million for Queen Vic Market

The draft budget also includes $29 million towards the controversial Queen Victoria Market redevelopment.

"What we're doing is moving from planning to implementation," Councillor Wood said, adding that consultation on the project would continue.

The funds include the construction of a temporary market pavilion to house traders who are forced to move during the renewal works.