Major NSW projects like the Beaches Link and the Parramatta Light Rail could be mothballed after a key report found they would become increasingly complex and expensive.

The NSW government's independent infrastructure body said "megaprojects" like the Beaches Link, Parramatta Light Rail, the M6 Motorway, a Blue Mountains tunnel linking Katoomba and Lithgow, major dams and future stages of the Sydney Metro should be shelved in favour of smaller projects that provide "high paybacks".

In its five-year strategy, released today, Infrastructure NSW argued it would become increasingly difficult for the NSW government to deliver complex, multi-billion-dollar projects due to labour shortages and the ongoing impact of the COVID-19 pandemic.

"Construction industry capacity, supply chains and skills have all been stretched by COVID-19 and other world events," the report stated.

"It would be especially challenging to deliver additional megaprojects in a cost-efficient manner in coming years."

However, Infrastructure NSW recommended a proposal to raise the wall of Warragamba Dam should proceed as planned to provide flood mitigation for low-lying suburbs in Sydney's north-west.

Infrastructure Minister Rob Stokes said the NSW government remained committed to all of its projects but hinted some could be delayed or postponed.

"The NSW government remains committed to all projects,” he said.

“We must now consider the advice from Infrastructure NSW in relation to how we sequence our record infrastructure pipeline in light of extraordinary global headwinds.”

Mr Stokes said the government must consider "the independent advice from Infrastructure NSW.

"The report provides clear recommendations for us to diversify our infrastructure pipeline, consider more smaller projects while continuing to deliver city and state-shaping projects."

The Regional Roads and Transport Minister Sam Farraway insisted the Great Western Highway tunnel through the Blue Mountains would proceed on time, despite the report suggesting its urgency be reconsidered.

Deputy Premier and Regional Minister Paul Toole echoed the sentiment. 

"We know how transformative major projects like dams and roads can be for regional communities, and the NSW government remains committed to seeing these projects completed," Mr Toole said. 

But Labor's Shadow Treasurer Daniel Mookhey said it appeared the government was preparing to dump its key promises.

"These are projects that had already passed the government's own assessment processes for both need and affordability," he said.

"The fact that the government is now walking back on its own promises raises serious questions about how this government selects projects and how the government intends to pay for them."

"These communities deserve clear answers from the government as to why these projects are being axed."

Infrastructure NSW made 113 recommendations in total, including enhancing the state's long-term water security by introducing recycled drinking water.

The report also made the case for the government to continue its program of "asset recycling", in which state-owned assets are privatised in order to fund new projects.

And it said investment from the private sector would be critical for the state's future delivery of infrastructure and services.

"The government should continue with successful policies such as asset recycling, user charges and value capture to sustain its infrastructure investment pipeline," the report stated.

"It should also seek more private sector co-investment and more long-term programmatic funding support from the Commonwealth."