The NSW government has all but confirmed it will mothball several of its key infrastructure projects as it tries to prioritise its big ticket spending.

Premier Dominic Perrottet said his government would push ahead with the second stage of the Parramatta Light Rail project with a four-year $602.4 million funding commitment to be announced in the state budget on June 21.

But the government has stopped short of committing money or time frames to its other “mega-projects” like the Beaches Link tunnel, the M6 Motorway, a Blue Mountains tunnel and regional dams.

It comes after a report released yesterday by Infrastructure NSW recommended shelving some "mega-projects" in favour of smaller projects that provide "higher paybacks".

The independent body 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.

"It would be especially challenging to deliver additional mega-projects in a cost-efficient manner in coming years," the report said.

Today Mr Perrottet accepted that "market constraints" meant the government had to prioritise its spending.

"There is … globally a drive in infrastructure investment, labour shortages and increasing cost of materials — that’s a challenge that we’re facing, the nation is facing and the world is facing," he said.

"So it's only proper that we sit there, as we always do, and look at the pipeline of those projects and ensure that we sequence them in a way that works."

The decision means major projects like the Beaches Link tunnel are on hold indefinitely, despite the government's assurances it remains committed to all promised projects.

"What you'll see over the next decade here in NSW is rolling infrastructure projects at a mega scale," Mr Perrottet said.

"But ultimately right now we've got to set very clearly to the market what the pipeline is, and today as a government we've said it's Parramatta Light Rail."

The government has justified proceeding with the second stage of the Parramatta Light Rail arguing it is critical to the region's growth.

Funding for the first phase of works associated with the second stage of the light rail, which will link the Parramatta CBD to Sydney Olympic Park, will be outlined in the state budget.

But Infrastructure Minister Rob Stokes has confirmed the entire second stage was not yet fully funded.

"We can have it all, we can't do it all at once," he said.

"There are established processes where we go through the planning process, the procurement process and then move into delivery."

Construction on stage two of the Parramatta Light Rail will begin as soon as stage one is completed.

Stage one is expected to be completed in 2023.

Parramatta Lord Mayor Donna Davis said she wanted more detail about when and how the project would be delivered.

"You can understand why this community in particular is extremely frustrated, because it's great to have an announcement but we need to see a timeline," she said.

Speaking at Wentworth Point this morning, NSW Opposition Leader Chris Minns said Western Sydney residents had been waiting for years for the government to deliver on basic infrastructure.

"Families have made life-changing financial decisions to move into this community on the promise of new infrastructure for these parts of New South Wales," he said.

"The NSW government has announced Parramatta Light Rail stage two 14 times... is it any wonder that the residents of this community are sceptical when the Premier says 'we're finally going to deliver the infrastructure we've been promising for years and years and years'?"

Local resident Mark Green pointed to parks, traffic lights and public transport as examples of plans yet to be implemented.

"This is just terrible planning and unfortunately a betrayal by the state government," he said.