A STAGED construction of a light rail line from the University of NSW in Randwick to the CBD is expected to be announced, with a second line from Central to George St to be part two of the project.

Premier Barry O'Farrell will announce next week that work will start at the university and go to Central Station, followed by a commitment to build light rail from Central through George St to Circular Quay. The plan is expected to go to cabinet next week.

There now seems little hope of Infrastructure NSW's Nick Greiner and Paul Broad's idea of building a $2 billion bus tunnel under George St - instead of light rail.

While Transport Minister Gladys Berejiklian was told to find savings for her George St light rail project, she is understood to be winning the argument.

The announcement will be seen as a compromise option which would keep Ms Berejiklian and Lord Mayor Clover Moore happy but avoid digging up Sydney during the next election.

The Transport Minister and Transport for NSW's preference had been for work to begin at the Quay - in George St - and make its way through to Central.

But many in the cabinet, including Roads Minister Duncan Gay, are opposed to light rail down George St amid fears it could create even further congestion.

There were also concerns another capital project would put the state's AAA credit rating at risk.

Ms Moore has promised $180 million towards the project if the George St leg goes ahead.

Government sources said the idea would be to start construction of the railway at UNSW and for it to travel to Randwick Racecourse and the SCG, then on to Central. After that, a second leg could be built down George St to the Quay.

The announcement of the new light rail line is expected to be part of the government's response to Infrastructure NSW's State Infrastructure Strategy, the Metro Strategy and Ms Berejiklian's Long Term Transport Masterplan.

University of NSW vice-chancellor Fred Hilmer urged the Premier to go with the Randwick-to-Central project first.

"Analysis shows the two projects should be considered independently," he said. "Less than 1 per cent of staff and students coming to UNSW commence their journey in the CBD - 85 per cent start from areas outside the eastern, CBD and inner-west suburbs, making Central Station by far the most important interchange point.

"We have the spine for the proposed light rail to Randwick and the University."

Originally published as Light rail gets green light