Mr Hockey was on Wednesday adamant the Commonwealth money, including $1.5 billion already provided, was for building the East West Link only.

It follows a meeting between Mr Hockey and his Victorian counterpart, Tim Pallas, on Monday to discuss infrastructure funding.

Mr Pallas appeared to confirm that discussions were underway to redirect the total $3 billion into the level-crossing removal program, describing his Monday meeting with Mr Hockey as "wonderful", with "a lot of love in the room".

"We've made it clear that we believe that the elimination of level crossings will be an appropriate repository of federal funding ... for that, so those discussions are going on," Mr Pallas said.

"Look, it was a good exchange. The reality is we agreed to disagree on East West, we are now working together to look at alternative options as repositories of funds."

But Mr Hockey on Wednesday indicated there was no prospect of redirecting the $3 billion into the level crossing program.

"At the meeting the Victorian Treasurer and I talked about other projects which could receive further funding under the government's asset recycling initiative," he said. "This discussion included how projects such as metro rail and level crossings could be funded following the sale of the Port of Melbourne."

Fairfax Media understands Mr Hockey agreed not to pursue $1.5 billion of Commonwealth cash already handed over to Victoria for the first stage of the dumped road.

Victoria has already earned an estimated $30 million in interest on the cash. Confirmation that the Commonwealth will not be pursuing the $1.5 billion – for now – will come as a relief to Mr Pallas, who is preparing his first budget as treasurer.

The Andrews government had previously promised to pay for its plan to remove 50 level crossings over two terms using cash raised through the long-term lease of the Port of Melbourne.

The level-crossing removal policy is expected to cost about $6 billion over eight years, with about $2.4 billion to be spent this term eliminating 20 level crossings. The state government is now considering alternative uses for the port money, including the metro rail project, which is likely to cost at least $10 billion, and a new toll road to remove trucks from the overburdened Westgate Bridge.

Although the Abbott government has argued strenuously against Labor's decision to dump both sections of the $15 billion toll road, Coalition strategists believe withdrawing funding could further cruel the Liberal Party's hopes of retaining at least four seats in Victoria at next year's federal election.

On the other hand, the federal government is facing pressure from state colleagues to inflict maximum damage on the Andrews government, which is struggling to negotiate its way free of the road contract, despite previously declaring the deal was not worth the paper it was written on.