The government has allocated funding to the Lower Hunter Freight Corridor project in the past five state budgets, including $13.3 million in 2020-21, $19m in 19-20, $14m in 18-19, $11.8m in 17-18 and $14m 16-17.

But the majority of the funding has been rolled over each year as the latest budget shows only $3.6 million had been spent before June 30.

"I have grave fears that this project will remain a pie-in-the-sky, notional project that never, ever gets done," Newcastle state MP Tim Crakanthorp said.

"What are they actually doing? They've been doing nothing.

"The department, the minister actually has to make this happen."

Building the 25-kilometre line would ease congestion at the two crossings, increase capacity for passenger and freight train growth, improve network efficiency and enhance urban amenity alongside the existing rail line.

The project has been talked about since the 1990s and gained traction in 2013 when Transport for NSW awarded urban planning firm Mecone a contract to "identify a number of viable corridor alignment options".

It is not known if a preferred alignment was determined. The firm did not return calls and the government denied freedom of information requests for documents earlier this year.

In the 2016-17 and 17-18 budgets the allocated funding was for "planning and preconstruction", but in the budgets since this reverted to "planning and preservation".

Last year, Transport for NSW raised concerns about the corridor being impacted by a proposed motorsport park at Wakefield.

Lake Macquarie council recommended the park be approved as the corridor was not officially designated and the agency's freight rail investigations held "no statutory weight".

The agency reiterated previous statements when contacted last week and said it was "continuing investigations" and hoped to "formally engage with the community" about "potential" alignments "in the near future".

Lord mayor Nuatali Nelmes said the level crossings had "caused generations of Novocastrians a lot of frustration" and the freight line was the "most realistic way to remove these pinch points".

Hunter Business Chamber CEO Bob Hawes said the separation of freight and passenger rail would be a "particularly significant issue" moving forward as the region's population grows.

"The consequences of the gravity of residential development as it moves towards that corridor is going to make it all the more difficult for them to identify and then secure an option," he said.