Key Points:

The next stage of Wellington's Transmission Gully highway is getting the green light with a new route that will shave $275 million off previous cost estimates the preferred option.

Transport Minister Annette King said the new route of the proposed Transmission Gully highway also would have less impact on environmentally sensitive areas and have greater resilience to geological hazards such as earthquakes and major storms.

The estimated costs to build Transmission Gully have grown to $1.025 billion but Ms King said this was a saving of $275m in real terms on 2004 estimates.

At that stage the project was estimated to cost $985 million but Ms King said that once that figure was inflation adjusted, the cost estimate would have been $1.3b based on Land Transport New Zealand's (LTNZ) escalation figures.

Ms King said the Government remained committed to spending $405m, earmarked for the western corridor highway, once the Wellington region had reconfirmed its preferred option.

The shortfall in funds will have to be found in other ways such as tolls and a regional petrol tax.

Ms King today said the Land Transport Management Amendment Bill would have to be passed before a regional fuel tax could be levied.

She made no mention in her statement of tolls but Greater Wellington regional council chairwoman Fran Wilde told today's Dominion Post the region would have to look at tolls. Ms Wilde said that in today's climate of high fuel prices "it would be a challenge" to impose a regional fuel tax.

Ms King today said she hoped that by late 2009 the region would be able to confirm how it would fund projects like Transmission Gully.

There has been debate for years in the region over whether Transmission Gully is the best way to ease traffic congestion into the capital city.

United Future leader Peter Dunne, a strong advocate of Transmission Gully, told The Dominion Post the route was "all go" and that local authorities had no option but to agree.

Otaki MP Darren Hughes said the Government's green light meant "we are closer to construction than every before".

Green MP Sue Kedgley said with petrol costing more than US$130 a barrel, it made no sense to build a $1b motorway.

"Commuters are saying right now they can't afford to drive to work so how will they be able to pay even more for this project through tolls and fuel taxes?"

Ms King said that with the completion of the preliminary investigations, phase two of the investigation could go ahead.

LTNZ had approved an extra $20 million in funding to prepare the information required to secure the preferred route. This would be funded from the $80m the Government committed in the 2006 budget for the investigation.

Completion of phase one had been a "significant step". Reaching consensus on the preferred route had required close co-operation between Transit, LTNZ and the Wellington regional and territorial authorities.

"This co-operation needs to continue to achieve a suitable funding plan and integration with land use," she said.

Details of the new preferred route were not released today.

Ms King said Transit would begin formal consultations in July once it had talked to landowners. A draft scheme assessment report would be released by the end of July.