Plans to tear down the Olympic stadium 18 years after it hosted the Summer Games prompted major criticism, leading to an online petition calling on the state to scrap the project and invest the money in smaller, grassroots sports facilities.
Refurbishing the existing stadium would save the taxpayer A$ 500 million and result in the work being completed two years earlier than scheduled, with construction expected to start in 2019 and finish by mid-2021, Berejiklian said on Thursday.
Plans to knock down and reconstruct the SFS at Moore Park will still go ahead, with work expected to begin late this year and finish by March 2022.
"We will be able to deliver two outstanding stadiums for Sydney at the best possible value for taxpayers," Berejiklian added.
The National Rugby League announced its support for the decision not to tear down the Olympic stadium and backed the new plan to refurbish it into a rectangular venue.
"The NRL is endorsing the decision made today by the NSW Government," Australian Rugby League Commission chairman Peter Beattie was quoted as saying by the Australian Associated Press.
"The NRL would have preferred that it was a new stadium... but the fact is the refurbishment to a rectangular stadium - whilst not our preferred position - is one we'll support."
The NRL had an agreement with the NSW government to hold the NRL grand final in Sydney for the next 25 years if the government went ahead with the plan to knock down both venues.
That agreement is not in danger despite the government deciding not to completely demolish the Olympic stadium.
"We committed to playing the grand final in Sydney for the next 25 years and that commitment will be met," NRL chief executive Todd Greenberg said.
(Reporting by Simon Jennings in Bengaluru; Editing by Keith Weir)
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