Prime Minister Tony Abbott and Victorian Premier Daniel Andrews have scheduled discussions on alternatives to Melbourne's dumped East West Link.
Victorian Treasurer Tim Pallas says talks about using money allocated for the project on suburban level crossing removals are ongoing, according to Fairfax Media.
However, Treasurer Joe Hockey has reiterated the federal government's insistence the funds won't be used for that purpose.
"I expressed emphatically to the Victorian Treasurer that the $3 billion, including the $1.5 billion already provided, is only for the purposes of building the East West Link," Mr Hockey said on Wednesday.
Mr Andrews said the funds will find a home somewhere else.
"Victoria will put forward thoughtful and important alternatives where that money can be spent," Mr Andrews told reporters.
He said he had held positive discussions with Mr Abbott, where the prime minister conceded the controversial project would not be built.
"We're due to meet again for a detailed discussion before the prime minister departs for Anzac Day overseas, and I look forward to that," Mr Andrews said.
Contracts for the $6.8 billion East West Link stage one were signed weeks before the November 2014 election, despite the Labor opposition promising to rip them up.
Mr Abbott has repeatedly said federal money earmarked for the project must be used for infrastructure of national economic significance.
Mr Hockey said he had spoken to Mr Pallas about how other projects could be funded using the federal government's asset recycling initiative, including level crossing removals.
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