The Government is moving ahead with a second Mt Victoria tunnel for Wellington and light rail running from the central railway station to Island Bay as its "preferred choice".

Upgrades will also be made to improve traffic flow at the Basin Reserve, which involves the extension of the Arras Tunnel.

This morning Finance Minister Grant Robertson and Transport Minister Michael Wood outlined the long-awaited decision on Let's Get Wellington Moving's (LGWM) big projects.

The second Mt Victoria tunnel will have two lanes for vehicles and two lanes for public transport. The existing tunnel will be transformed into one for walking and cycling.

It means there will be no additional lanes for cars through Mt Victoria.

Light rail to the city's southern suburbs was preferred due to the route's potential for new housing.

Robertson said this was a once-in-a-generation opportunity to shape Wellington's future, align transport and urban development, and help address the climate crisis by moving more people with fewer vehicles.

"Light rail will support more people living centrally, close to where they work, study and live their lives," he said.

Up to 80,000 more people are expected to be living within the city limits by 2050.

Today's announcement marks a significant milestone for the multi-billion-dollar project that has a reputation for anything but moving.

It is more than three years since then Transport Minister Phil Twyford "announced" the LGWM package.

Since then, a scathing review found the project was at risk of failing, the public has been consulted on four more options, and mass rapid transit is no longer about getting to the airport.

Following today's announcement, a detailed business case will be carried out. Other LGWM partners, including the city and regional councils, will also need to agree on the plan for that work to progress.

Wood said given the scale of the project, this business case would also consider the alternative option of bus rapid transit along the light rail route.

"This is a prudent step to take and ensure we can maintain momentum on the project."

Earlier this month the Herald reported the regional council had raised concerns about whether uncertain housing development forecasts could be relied on to justify light rail along the route.

Today's announcement confirms these concerns have been considered and an "off-ramp" has been built into the preferred option via bus rapid transit as a potential alternative.

It means the light rail at the heart of the scheme could be converted to cheaper bus rapid transit if the dwellings along the route and Wellington's growing population failed to justify a more costly, but more efficient, light rail.

Meanwhile, the Government has asked for options to fast-track progress and early works on its preferred LGWM option, with consideration to phasing options, Wood said.

"The data tells us that the costs of delaying this project for another decade will only see costs increase. Wellingtonians recognise the need for this investment, they want us to get on with it, and we are."

Other LGWM projects already underway include removing vehicles from the Golden Mile.

This will mean wider footpaths, dedicated bus lanes, and a safer and more pleasant place to walk, shop and dine.

Construction has started on a pedestrian crossing on State Highway 1 at Cobham Drive, after Wellington Airport dropped a legal battle opposing it.

Work on small intersection improvements in the central city has also started to make it easier for pedestrians to cross, and get to and from the waterfront.