The council will consider a staff proposal next week to borrow $22.6 million from the NSW Treasury Corporation to move forward with the $35.6 million extension.

The loan would be borrowed at 0.88 per cent and repaid over 10 years. The council would pay about $1 million in interest in total.

The foundation will contribute the remaining $13 million through bequests and community fundraising.

"We're absolutely delighted with the announcement that we've got a funding pathway to realise what has been a shared vision for an expanded art gallery for some time," Ms Galwey said.

"This is a once in a lifetime opportunity to take advantage of historically low interest rates. I think it's a sensible move."

The council has been jockeying for state or federal funding for the expansion, a project that has been planned for some 16 years.

While it has two outstanding federal grant applications, the NSW government has rebuffed funding the expansion to date.

Arts Minister Don Harwin has repeatedly said in recent years that the state government did not have a fund it could provide a grant from.

Contacted Thursday about his thoughts on the council going it alone, a spokesperson for Minister Harwin said the council was eligible to seek a grant from a $60 million funding pool created in the most recent state budget.

"The NSW government has announced the $60 million Creative Capital program to address cultural infrastructure needs across NSW," the spokesperson said.

"The NSW government recognises the importance of the Newcastle Art Gallery and its collection and the council will be eligible to apply for funding towards the Newcastle Art Gallery from this fund if it wishes to do so.

"Guidelines for the Creative Capital Program will be released in the near future."

One of the council's federal funding applications is through the two-year $100 million Regional Recovery Partnerships program.

Some of this funding has already been committed in other parts of the country.

A spokesman for the Department of Infrastructure, Transport, Regional Development and Communications, which runs the program, said "projects for funding in Newcastle and [the] Hunter" were "currently being considered". He did not provide a timeframe for funding announcements.

Ms Galwey said she was "still hopeful" the project would receive support from either level of government.

"We have a nationally and internationally acclaimed collection, so it certainly deserves funding from federal and state levels," she said.