Treasurer Jim Chalmers' fifth financial blueprint will include an extra $3.8 billion for the massive infrastructure project, for which preparatory work started in 2023.
Prime Minister Anthony Albanese said Suburban Rail Loop East, connecting train lines in Melbourne suburbs of Cheltenham, Glen Waverley, Box Hill and Clayton, would make the city's economy more productive and improve connectivity.
The cash splash takes the Commonwealth's spend on the project to $6 billion - still $5.5 billion short of the amount the Victorian government wants from its federal counterpart for the rail line.
Despite the Victorian budget edging towards $200 billion in debt, the state government has committed to funding $11.5 billion of the rail project with the other third coming from "value capture", such as elevated land tax revenue.
Australian cities have historically relied on radial rail networks to ferry commuters from the outer suburbs to a central hub.
But the great cities of the world, such as Paris, New York and London, also have orbital rail networks that enable people to get around a city without going into the middle and then back out again, Mr Albanese said.
"And that is what this vision does," the prime minister told reporters.
Tunnelling for the project is expected to start by the end of 2026, with new line scheduled to be running by 2035.
Two further stages to extend the line across the city's north and west are planned to follow.
But the rail loop has been much-maligned due to the first stage's $34.5 billion price tag.
Victorian Opposition Leader Jess Wilson has promised to pause construction and review the project if she forms government in the November state election, despite $7.7 billion already due to be spent by mid-2027.
The Victorian government argues the spending is worthwhile because it will reshape how people travel around Melbourne, creating new hubs in the suburbs and generating thousands of jobs.
Despite the criticism, the cost per kilometre is forecast to be similar to comparable projects such as Sydney's under-construction Parramatta to CBD Metro.
Monash University professor of public transport Graham Currie said there was no doubt the project would be expensive, but it was a "long-term, visionary" project that would have massive benefits.
"Melbourne is forecast to be the size of London by 2050 and London has much better railways than Melbourne," he told AAP.
"If we can't run Melbourne in 20 to 30 years time because there is too much traffic everywhere, what are we going to do?
"By then we might be wondering why we didn't build more of these."
Victorian Premier Jacinta Allan praised her federal counterparts, saying they were a "partner in Canberra who gets what our growing state needs".
"The Suburban Rail Loop will slash travel times and cut congestion for busy families," she said.
The federal government angered farmers and regional leaders this week when it announced a major freight rail line intended to connect Melbourne and Brisbane would be cut short because of cost blowouts.
Tuesday's budget will include plans to pare back the Inland Rail project and instead end it at Parkes, in central NSW, after analysis showed costs had soared from $16.4 billion to $45 billion.
The project had been funded "off-budget", deemed an investment that would generate a return for the government over time.
But the government received advice that the extra $29 billion needed to finish the project would have provided an insufficient return to justify being funded off-budget, adding to the underlying deficit, Finance Minister Katy Gallagher said.
She said axing the project north of Parkes will reduce more than $4 billion from federal debt over four years from 2028/29.
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