Tunnel-boring machines will dig seven metres under Melbourne's Yarra River as part of the $11 billion Metro Rail project.
The machines were chosen over more disruptive methods, including damming or dredging the river to put an immersed tunnel in the water.
"There'll be some impact obviously during the important construction phase, but this engineering approach will see far less disruption than the other two," Premier Daniel Andrews told reporters on Wednesday.
The tunnel will be 11 metres below the surface and will sit to the east of the Princes Bridge, around seven metres below the riverbed.
The details of the final location, design and construction methodology for the tunnels is a matter for the winning tender.
Public Transport Minister Jacinta Allan said the tunnel boring wasn't necessarily the cheapest option, but it would cause the least disruption to the city.
Similar machines are being used to build New York's Second Avenue Subway project and London's CrossRail project.
The Metro Rail project will put twin 9km tunnels under the Melbourne CBD and add five new stations to the network.
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