The cost of Mike Baird's signature public transport promise for western Sydney has ballooned to more than $3.5 billion – $2.5 billion above what has been budgeted, secret government documents show.

The Parramatta light rail project is the centrepiece of the government's plans to cement Parramatta as Sydney's second central business district, as well as its proposal this week to build thousands of apartments around Sydney Olympic Park.

But only $1 billion has been allocated for a project which, according to a preliminary business case obtained by Fairfax Media, is costed at more than $3.5 billion.

The business case also shows the light rail project is not expected to generate as much benefit as it costs.