The federal government has signed off on the first stage of light rail to Woden.
It clears a crucial hurdle to getting work under way on the extension of the network from Alinga Street to Commonwealth Park.
The ACT government referred the plans for the city to Woden light rail line to the federal government for environmental approval in August 2019.
Stage 2A of the project was approved on Tuesday afternoon, with conditions imposed to protect the critically-endangered golden sun moth.
Chief Minister Andrew Barr welcomed the federal government environmental approval.
"This is an important milestone in progressing Stage 2 of light rail to Woden which will secure more than 1000 jobs," he said.
It will still require National Capital Authority and ACT Planning approval to progress.
Mr Barr will on Wednesday announce $2.1 million will be included in next week's budget for early design works on raising London Circuit, as part of the enabling works for the light rail project
Construction to raise the road on either side of Commonwealth Avenue is expected to begin "as early as" 2021-22 and will take about two years to complete.
It involves changing the current split-level, overpass-underpass configuration into a level intersection.
The 2020-21 budget will also deliver funding to assess the benefits of extending light rail further from Woden to Mawson.
Contracts to build and operate the next stage of light rail were due to be signed in mid-2020 but this has yet to occur.
It also appears infeasible that the route will be operational, as previously suggested, by 2023.
Stage 2B, which will run from Commonwealth Bridge to Woden, is still going through the environmental approvals process.
It will also have to gain federal parliamentary approval because it will run through the parliamentary triangle.
Transport Minister Chris Steel said environmental approvals for that stage of light rail would take up to a further 18 months.
"Studies required for these approvals include detailed analysis of the route, environmental and heritage assessments, and consultation with a range of local and federal stakeholders," he said.
"Light rail is central to delivering Canberra's integrated transport network to meet future population growth and support a sustainable and liveable city for all Canberrans."
The light rail expansion is set to affect a number of habitats for the critically endangered golden sun months
Under conditions of the environment protection and biodiversity conservation approvals, the ACT government would have to submit a management and rehabilitation plan for the federal minister's approval to mitigate any direct or indirect impacts on the moth.
The cost of the full second stage of Canberra's light rail network is expected to blow out by up to $300 million more than first predicted.
Initial estimates released in 2018 put the cost of the City to Woden leg of the project at between $1.3 to $1.6 billion.
However figures in the latest economic update reveal the bill for the project could balloon out to almost $2 billion.
The complexities of the route have contributed to a much higher price tag than the $675 million spent on the 12 kilometre city-to-Gungahlin leg of the line.
The government has faced criticism from the opposition and social welfare groups for a lack transparency around the cost of the project.