The federal budget will include plans to pare back the Inland Rail project and instead end it at Parkes in central NSW.
Independent analysis shows the cost has blown out from $16.4 billion in 2020 to more than $45 billion, Transport Minister Catherine King said in a statement.
''We are taking sensible decisions to realign the future of inland rail and build a safe, efficient and reliable network for the future,'' she said.
The 1600-kilometre freight line, made up of new and existing track, was designed to run from Beveridge, just outside Melbourne, to Kagaru near Brisbane, making it easier to move goods along the east coast while reducing the number of trucks on roads.
The government will hold on to land for the rail corridor north of Parkes – roughly halfway between Melbourne and Brisbane – but has no immediate plans to build the second half of the project.
Opposition transport spokeswoman Bridget McKenzie slammed the move, labelling the scaled-back plan a ''road to nowhere''.
''This is a direct hit for the businesses and communities and primary producers that had all geared up for this decadal project,'' she told AAP.
''Primary producers and manufacturers wanted resilience built into the north-south freight network … a project that is from Beveridge to Parkes loses all that additional opportunity.''
Some communities along the line had already raised concerns about noise and towns being effectively cut in two by the route.
The government will also pour an extra $1.75 billion into the east coast freight network in the budget, aimed at upgrading tracks, improving signalling and extending passing loops.
In Queensland, where 345 kilometres of proposed track will now miss out on federal funding, state Transport Minister Brent Mickelberg said the move was disappointing and shortsighted.
''Recent events have been a reminder of how fragile supply chains are – now is the time to be strengthening them, not eroding them,'' he said.
Queensland opposition transport spokesman Bart Mellish also called the decision disappointing and says he wants to see more money flowing to the state's regions.
''We want to see more investment in regional Queensland from both the state and federal budgets,'' he said.
NSW Farmers president Xavier Martin says the government owes answers to farmers and towns along the northern part of the inland rail corridor, where land has been acquired and sections of track built.
''NSW Farmers policy supported inland rail because moving freight more efficiently matters to farm businesses, regional communities, and the prosperity of the nation,'' he said.
''Governments can't ask rural and regional communities to carry the burden of disruptive construction, then just change direction without accountability."
Farmers still struggle to get produce to market and are demanding clarity over easements and already-constructed assets north of Parkes.
''Certainty matters, and if the funding is stopping at Parkes then the government must be upfront about what happens next, because real people and real businesses have already paid a price,'' Mr Martin said.
Queensland's Western Downs Mayor Andrew Smith said the decision was hugely disappointing and a missed opportunity for regional growth.
Inland rail could have taken heavy trucks off country roads that are already worn out and underfunded, he said.
''It's not going to hurt us today, but down the track, in the long term, it's devastating,'' he told AAP.
Mr Smith says the cutback comes as regional Queensland is growing strongly in productivity and needs major nation-building projects to keep up.
''Every region in rural Queensland, if not rural Australia, is having issues around road infrastructure that's under-maintained, under-managed and underfunded,'' he said.
