A development application for the seven-storey building, on the corner of Railway and Tighe streets, was recently lodged with council.

The site has previously been identified by Transport for NSW as a potential tram route, along with the adjacent Dairy Farmers Corner site where Thirdi Group has proposed a $110 million residential complex.

The two properties accommodate four corridor options Transport for NSW has considered as a way of extending the light rail beyond its existing western terminus and out onto Tudor Street.

The government agency began investigating options last year after Newcastle state MP Tim Crakanthorp and Business Hunter CEO Bob Hawes raised concerns about development potentially hindering a future extension.

The block between Newcastle Interchange and Tudor Street is zoned for 90-metre buildings and Mr Crakanthorp said at the time predicted development had the potential to "kill" any future extension of the city's existing 2.7-kilometre line.

The state government forced Doma Group to leave space for an extension beside the multi-storey car park it built adjacent to Newcastle Interchange, but there is no corridor protected between there and Tudor Street.

The Tighe Street car park DA was lodged by Tatts Greta Pty Ltd and exhibited late last year.

Transport for NSW met with the applicant and Thirdi Group in December.

The car park proponent, a veteran local commercial developer, said he was receptive to adjusting his plans to allow for a light rail line to pass through his land and had encouraged Transport for NSW to progress its planning.

But he said he wanted his DA assessed as it is and he would only wait so long before building the parking facility should the agency fail to lock-in a corridor and outline its requirements.

Mr Crakanthorp said on Tuesday it was "critical" a light rail corridor was preserved through the area to ensure a future extension would be possible.

"I first raised the urgent need to preserve these corridors at the start of 2021, and 12 months later Transport for NSW are still considering preferred options," he said.

"With the large amount of redevelopment planned to take place in the west end over the coming years, light rail expansion options must be determined now before they're built out.

The Broadmeadow precinct is the next major renewal area for our city and a light rail connection has to be identified and planned for now."

Transport for NSW's summary of an extension business case which examined four potential lines - to Wallsend, Mayfield, Charlestown and New Lambton Heights - concluded a line to John Hunter Hospital via Broadmeadow was the "most suitable", but was not yet justified.

All four lines ran via Tudor Street and the 2020 report said properties between the heavy rail corridor and Hunter Street in Newcastle West would be "impacted".

It recommended investigating "the full impact on the roads and adjacent properties through alignment optimisation".

Transport for NSW is yet to formally respond to the car park and Thirdi Group development applications, but in a letter to Mr Crakanthorp this week the agency said "identifying a preferred option" through Newcastle West was "a priority".

And following a request for comment from newly appointed Cities Minister Rob Stokes about the government's commitment to protecting a corridor, the agency told the Newcastle Herald it was continuing its options assessment, including "exploring these matters in the context of broader precinct and city planning" with council, the Department of Planning and the Hunter Development Corporation.

"Transport for NSW is continuing strategic investigations into the future corridor for Newcastle light rail, following pre-feasibility investigations carried out in 2020," it said.

"These investigations remain in their infancy but relate to future corridor preservation, alignment and strategic transport network outcomes."

A new regional transport plan will also soon be released, the agency said.

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