The allocation comes as the board of the Land Development Agency is due to meet this month, with the future of the site believed to be on the agenda.

The LDA is also appealing registration by the ACT Heritage Council of the old railway corridor on the brickworks site, the remnant of the line that used to take construction materials from the brickworks to central Canberra for work on significant early buildings.

Neither the government nor the agency has confirmed the earthworks funded in the budget are related directly to future housing.

However, LDA chief executive David Dawes said on Wednesday it was ''continuing planning studies and investigations to assess the Canberra brickworks and environs for appropriate future use''.

''Work is currently under way to confirm the commercial feasibility of the Canberra brickworks complex, including detailed analysis of proposed future uses, and suitability of the kiln structures for these uses,'' Mr Dawes said.

The brickworks, Canberra's first factory, operating between 1913 and 1976, is located on prime real estate in the city's prestigious inner-south.

The prospect of the site being developed for housing, delivering the government a windfall of millions of dollars from the land sale, has been discussed for years. The LDA has previously described it as a ''prime residential development opportunity'' and sought expressions of interest from developers.

A planning strategy prepared for the LDA in mid-2011 said the brickworks site was ''deteriorating at a rapid rate'' and a proposed master plan would preserve the cultural heritage while providing ''sustainable development to meet the ACT's growing housing shortage''.

The National Capital Authority has also eyed off the brickworks site for a diplomatic estate. A report commissioned by the NCA last year suggested the Commonwealth could develop the old brickworks site at a cost of almost $28 million, including $21 million to buy the land from the ACT government.

A spokeswoman for the NCA said on Wednesday that all development of diplomatic estates in Canberra was on hold until the federal government responded to an inquiry by the joint standing committee on the allocation of land to diplomatic missions. However, if the brickworks site was to be developed for diplomatic missions, it would be done in consultation with the ACT government.

This week's budget provided $2.9 million towards removing contaminated soil buried in a quarry at the brickworks site ''in order to make the area safe for future users of the site''. Another $300,000 was allocated for a new fence at the site to stop people accessing the area and vandalising the site, including with graffiti.

Yarralumla Residents Association president Marea Fatseas said the budget allocations did raise questions about the future of the site.

''It's a good thing to remove the contamination and we look forward to being consulted about the proposals for the brickworks,'' Ms Fatseas said, adding that money for the new fence was also welcome.

ACT Heritage Council president Duncan Marshall also confirmed the ACT Civil and Administrative Tribunal would be hearing an appeal against heritage registration of the railway corridor on the site.

The matter is due to be heard between August 30 and September 4. It's believed the LDA is against the listing by the council on the basis it would affect entry to the site.

A report prepared for the LDA by consultants Lovell Chen found the railway remnants were ''not of sufficient heritage significance to warrant registration on the ACT Heritage Register''.

However, Mr Marshall said the council believed the remnant corridor was an important part of the early infrastructure; the line was used to transport bricks for the construction of Old Parliament House. He said no track was left, but the physical corridor did remain.