The Sydney light rail project has been hit by more controversy, this time with valuable public artwork being removed during construction.

One of Australia's foremost contemporary artists, Lindy Lee, was commissioned to create the artwork called Cloud Gate about five years ago.

The integrated design installed in Chinatown's Thomas Street is valued at around $500,000.

Now part of the artwork — brass cloud shapes inlaid into the footpath — has been dug up and covered over with bitumen.

Artist Lindy Lee with the bronze clouds built into the footpath in Thomas Street. ( Supplied: Transforming Chinatown )

Lee said she would inspect the damage in person when she arrived in Sydney today.

"It's very disappointing because it was an awful lot of effort on my part," she said.

"It just feels like the left hand wasn't speaking to the right hand.

"It was a very expensive project, because it's two streets of Chinatown, you can imagine, a lot of the budget went to infrastructure, so you'd think after all this expense they'd figure out a way of going around [it]."

Sydney Council has written to Transport for New South Wales to advise that it intends to restore the artwork and requires the department to provide the funding.

The council says it understands Transport for New south Wales will seek compensation from Acciona, the Spanish-based company building the light rail.

The NSW Government is locked in an acrimonious legal battle with Acciona over long delays in delivering the project.