The NSW government has confirmed Fulton Hogan Construction Pty was awarded the contract for the $450 million project.

The section of work will deliver the "missing link" of the bypass from Sandgate to Bennetts Green. Once complete, commuters will be able to skip 11 sets of traffic lights along the notorious stretch around John Hunter Hospital.

"This 3.4-kilometre stage of the bypass will be one of Newcastle's largest infrastructure projects," Federal Transport Minister Catherine King said.

"This is an exciting day for the community, who have long benefited from the previous stages of the Newcastle Inner City Bypass and know the positive impact this project will have on travel times and congestion.

"Once the bypass is complete, commuters will enjoy a reduction of up to 80 per cent on travel times during the morning and afternoon peaks."

The contract also involves early works on Lookout Road and McCaffrey Drive, to enable Fulton Hogan to accelerate work around the southern interchange.

Major work is expected to start in October followed by the new road opening to traffic in 2025.

The project is funded on an 80:20 basis by the Australian and NSW governments.

Transport for NSW said it was working with NSW Health to ensure the project aligned with work on the John Hunter Health Innovation Precinct and to provide a second access road to the hospital campus.

NSW Metropolitan Roads Minister Natalie Ward said the project was expected to create up to 900 jobs during the construction phase.

"The Newcastle Inner City Bypass has been designed to provide traffic relief to the surrounding road network by removing up to 30,000 vehicles each day from Lookout Road, Croudace Street and Newcastle Road," she said.

Newcastle MP Sharon Claydon said the project will be a "big win for commuters across Newcastle".

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