The heavy rail line into Newcastle will start to be removed from next year, after the government won support for legislation allowing the overhaul in the NSW Parliament on Wednesday night.

The upper house vote, which follows a drawn-out legal battle and a highly charged debate surrounding the future of the state's second city, will also allow the government to build a replacement light rail service on an alternative route through central Newcastle.

NSW Premier Mike Baird and Transport Minister Andrew Constance after unveiling the new design for the Wickham transport interchange. Mr Constance says light rail will allow Newcastle to capitalise on an opportunity for renewal. Credit:Max Mason-Hubers

"With the bill passing Parliament, we now have the certainty to forge ahead and deliver on our promise to roll out light rail, allowing Newcastle to capitalise on this opportunity for renewal and reach its potential as an economic, social and cultural centre," Transport Minister Andrew Constance said on Thursday.

But the government's policy has been strongly criticised by some community groups, the Labor opposition and the Greens, who say removing a direct rail link into the heart of Newcastle is a retrograde step.