Regional Development Minister Alannah MacTiernan has doubled down on comments about the best way to spend state money in the regions, saying she will support projects that diversify the economy.

In Kalgoorlie-Boulder on Friday to turn the sod for the $16 million Kal City Centre project, Ms MacTiernan said she stood by her previous criticism of the Royalties for Regions fund under the former Liberal-National Government.

When Labor returned to power in 2017, Ms MacTiernan said the previous administration had put too much focus on the "beautification" of towns using the R4R scheme.

While today she said she hoped the Kalgoorlie CBD transformation would deliver a "beautiful square", Ms MacTiernan was adamant it would be different to past projects she had criticised.

"What we were seeing in lots of small towns, instead of getting any real economic activity or economic diversification, they thought a planter box with some petunias might help do the job," Ms MacTiernan said.

"What we do need to do is create an environment where we keep people and make this an attractive destination."

Kalgoorlie 'falling behind'

Ms MacTiernan said her focus as minister had been on diversifying regional economies with what she termed "more complex work".

She said the Kal City Centre project followed similar developments in Broome and Margaret River that had revitalised those communities.

"There will always be a place, particularly in these larger centres, for investment in the town centre in ensuring the place is keeping up with the modern standards of amenity that people expect," Ms MacTiernan said.

"I think it would be fair to say that Kalgoorlie is perhaps falling behind some of the other regional capitals when you look at what they have been able to provide that attractive amenity, and that's why we're really keen to get on with this project."

Work to begin next month

Demolition works are expected to begin next month and will take about three months.

Construction is expected to take 12 months and is scheduled for completion in early 2023.

The project will completely redevelop St Barbara's Square and the laneway to the rear entrance of Kalgoorlie's Markets Arcade.

It will deliver a water feature, new gardens, areas for alfresco dining, entertainment areas and a playground.

There will be a central stage for community events, including a projector for outdoor movies and displays.

Aboriginal artwork will also form part of public art installations.

The City of Kalgoorlie-Boulder and the State Government are both contributing $8 million towards the works, which were delayed again earlier this year after supermarket chain Aldi announced plans for a new store nearby.

Ms MacTiernan said the scope of the project had been scaled back after the federal government rejected an application for $8m.

"We have got a future stage planned that will take the square right back to the next street, so I think that would be a useful thing I think for a federal government to do," she said.