Work underway on Sydney's Light Rail Extension

Preparation work on the first stage of the extension of Sydney's $500 million light rail network is underway, the NSW government has announced.

Work is being carried out on the Dulwich Hill to Lilyfield rail extension to allow the line to be built quickly once the consultation process is completed, Premier Kristina Keneally told reporters in Sydney on Saturday.

Consultation on the alignment of "greenways" and cycleways is continuing and the concerns of residents on the location of the Dulwich Hill station are being addressed, Ms Keneally said.

"What we can do in the lead-up to that planning and assessment work being finished is take this major preparatory work on what we know will be the actual rail line," she said.

"Transport NSW is aware of the concerns of residents and they are already looking at the issues they have raised and whether there are other options available."

It was "absolutely not" too late to consider changing the location of Dulwich Hill station, she added.

Work on the extension is due to begin by December and should be completed within two years, with the state government using more of the disused freight rail corridor for urban passenger transport.

The government is also calling for tenders for a detailed transport and traffic study to identify the preferred route for the light rail line through Sydney's CBD.

The line between Central station and Circular Quay via Barangaroo is likely to be be built on either Sussex or George Streets.

The tender process will take place over the next month and will be overseen by Transport NSW, Ms Keneally said.

"(The study) will provide advice on how to best align the route through the CBD and allow us to begin the work on the planning process for the next stage," she said.

© 2010 AAP