Delivery of a second stage of the Warrnambool line upgrade will start by the end of the year while work on a first stage is months behind schedule and won't be finished until possibly late next year, state and federal governments announced on Friday.

Stage two is commencing ahead of the completion of stage one after delays to complex signalling design caused by coronavirus restrictions, including remote working arrangements and delays in the availability of specialist resources.

The project's upgrades to level crossings need to be completed before VLocity trains can travel on the Warrnambool line.

But those upgrades will only allow the VLocity trains to run at the same speed as the current diesel trains - 115km/h.

Further track upgrades are required to allow VLocity trains to travel up to 160 km/h.

Those upgrades are not included in the $510 million investment in the Warrnambool Line Upgrade.

In January, the state's Minister for Public Transport Infrastructure Jacinta Allan said the Warrnambool line track was in worse shape than originally thought and a second business case would need to be submitted to the federal government at the end of 2021.

Wannon MP Dan Tehan said further scope for a second business case was never suggested or discussed when the initial funding was allocated.

The state government could not confirm if a second business case had been submitted.

The VLocity trains are expected to provide more comfortable and reliable train services, with better accessibility for people with prams or mobility aids and mobile signal boosters for better phone coverage.

Construction on stage two is scheduled to begin by the end of the year, starting with level crossing upgrades, and is targeted for completion in late 2023.

Work to commission the upgrades being delivered as part of stage one of the project will take place in mid-to-late next year, which will enable a new crossing loop at Boorcan and the addition of a fifth weekday return service between Warrnambool and Melbourne.

The new crossing loop will make it easier for trains to pass each other.

Passengers and communities along the line have already benefited from the addition of boom gates, bells and flashing lights at 12 level crossings as part of stage one, and a further 22 level crossings making journeys safer for cars, trains and pedestrians.

The Warrnambool Line Upgrade is part of the state and federal governments' investment of more than $4 billion in Victoria's regional rail network.

Mr Tehan said the upgrades would be a game-changer for the region.

"This crucial upgrade will see Victorians who use the Warrnambool line moving to their destination safely, efficiently and comfortably," he said in a statement.

"It will also provide more Victorians with better access to Warrnambool and our state's south west, which could deliver an economic boom including for our local tourist industry and for the local economy in our recovery from COVID-19."

Regional rail revival director Mark Havryluk said the overhaul of the line was "well underway".

"There is a significant amount of work required to bring these modern trains to Warrnambool and we're committed to getting it done as soon as we can so passengers can enjoy the benefits," he said.

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