Western Victorian MP Bev McArthur is on a collision course with Liberal leader Michael O'Brien over the mooted privatisation of VicRoads registrations.
The Western Victorian MLC said she was in the small government camp, not big government.
"If there is a public service that can be delivered efficiently and more cost-effectively, that's got to be good for everyone," she said.
Mrs McArthur said the privatisation could be in the interests of taxpayers, consumers and the people of Victoria.
"It's a fundamental principle of being a Liberal. No Liberal should believe in big government," she said.
Victorian opposition leader Mr O'Brien is facing a backbench revolt over the flashpoint issue of privatisation.
Mrs McArthur and MP James Newbury have voiced dissent after Mr O'Brien slammed the Andrews government over reports it was planning to sell off VicRoads' registration arm.
Mr O'Brien is concerned about rising costs to consumers and data privacy fears, which Mrs McArthur believes could be at odds with the traditional values of the party.
The Australian Service Union has also questioned any privatisation.
The state government is waiting on results of a "scoping study" to improve the efficiency of VicRoads' registration and licensing division which the union says could lead to privatisation of the government department.
The concerns have been raised as Victoria's state budget forecast has been hit by cost blowouts on major projects and a commitment of $600 million to help bushfire communities.
In December, the state government revised its budgetary surplus from $1 billion to $618 million, but that was before bushfire commitments were made.
It is looking at a range of options, including the role of Services Victoria and private sector partnerships, but has also emphatically ruled out privatisation of the VicRoads division as an option.
However, ASU secretary Lisa Darmanin is not convinced, with the union set to launch a new campaign warning against the sale of VicRoads.
Ms Darmanin said the union opposed the full privatisation of VicRoads' registration and licensing, as well as any partial privatisation through a public-private partnership.
"Privatisation always leads to the loss of jobs and conditions for workers and reduced services and higher prices for the community," Ms Darmanin said.
"When big business gets involved in delivering government services, regional communities are always hit the hardest."
"Once an essential service like VicRoads is handed over the private sector we will never get it back.
"Sell-offs to fix the Andrews Government's short-term budget problem can't be undone."
The state government said the fears are unfounded, adding the government would work with agencies and unions to ensure the best possible outcomes for staff.
A spokesperson said in the meantime, while the study is being completed, it remains business as usual.
"We've been very clear on this - we will not privatise the registrations and licensing function of VicRoads," the spokesperson said.
"We are looking at several options to make licensing and registration more efficient and easier for motorists."
Have you signed up to The Standard's daily newsletter and breaking news emails? You can register below and make sure you are up to date with everything that's happening in the south-west.