The proposal was part of a plan to breathe new life into the precinct, which had been labelled "dilapidated" by the Canberra Business Chamber.

Chief Minister Andrew Barr confirmed the project would not go ahead after the City Renewal Authority found the costs would be "prohibitive".

The authority first floated the idea in 2018, when it went out to tender for a feasibility study into the project.

It was part of the authority's revitalisation plans to create an arts and cultural precinct centred around the Canberra Theatre Centre and Civic Square.

The study was to determine the potential costs, benefits and challenges of replacing the current city bus interchange with an integrated underground bus interchange.

The study was not made available upon request to The Canberra Times.

However a spokeswoman said the authority established, through the study, that while an underground bus interchange was technically possible, the cost was prohibitive.

"It was determined that the interchange would cost hundreds of millions of dollars," she said.

"The key reason for the high cost was the significant excavation required for the layout, ramp ingress and egress and height requirements for efficient bus operations.

"The authority will continue its work in formulating an overarching design and development framework for the civic, arts and cultural precinct that will guide future development decisions by government and support revitalisation in the city centre, with an emphasis on people-centred place making."

Then-authority chief executive Malcolm Snow in 2018 said a new interchange would bring more people and businesses into a neglected part of the city, and free up public space on the current interchange site.

The interchange would have been directly connected to the light rail stop on Alinga Street.

"A modern, integrated underground bus interchange offers a wonderful opportunity to significantly improve the way public transport users access and experience Civic," Mr Snow said at the time.

"It would also allow us to use the site of the current interchange as a more attractive, lively and people-friendly space."

The interchange would have been built under one, or both, of the carparks at the corners of Northbourne Avenue and London Circuit.

In answer to a question on notice in the Legislative Assembly, Chief Minister Andrew Barr confirmed the project would not go ahead.

"This study concluded that the cost of an underground facility was prohibitive. The study is now completed," he said.

In its 2018 budget submission, the Canberra Business Chamber hit out at the dilapidated state of Canberra's city centre.

Chief executive Graham Catt said the organisation had seen some concentrated efforts since then to revitalise the area.

He said while more needed to be done, there also needed to be a balance between investment in the city and other business centres.

"We need to remember there are trading areas all over Canberra," he said.

"It's going to be important that while we want the the city centre to be thriving, at the same time we need to provide the same support across the board."

He said any major infrastructure proposals, like the underground bus interchange, needed to consider how travel habits would change over the coming years and decades.

"We need to be thinking about how our city will work and how people will move around in the future," Mr Catt said.