The Victorian government is drafting legislation to avoid paying up to $1.1 billion in compensation for axing the controversial East West Link road tunnel.
Leader of the government in the upper house, Gavin Jennings, confirmed that instructions had been given to draw up the bill.
"The answer is yes," Mr Jennings said on Wednesday.
The previous coalition government signed contracts for the $6.8 billion road tunnel, which Labor promised to dump if it won last November's election.
The government has been negotiating with winning bidder, East West Connect, to rip up the contract without paying all the compensation, reportedly as high as $1.1 billion.
Premier Daniel Andrews promised before the election that Victorian taxpayers wouldn't pay a cent in compensation, and said the contract wasn't worth the paper it was written on.
He has repeatedly suggested he would be prepared to legislate to avoid paying compensation if a settlement couldn't be reached.
Prime Minister Tony Abbott has criticised the Victorian government's willingness to legislate to get out of the contract, saying it would hurt Australia's reputation with international investors.
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