Billions of dollars of funding for Labor's signature level crossing removal program are at risk, with the State Opposition indicating parliamentary talks to sell the Port of Melbourne have all but failed.

For weeks both sides of politics have been wrangling in private to pass the sale legislation through state parliament's upper house, where Labor is seven votes short of a majority.

But those talks appear to have reached an major impasse. "Daniel Andrews is going to have to deal with the Greens on this," a senior Liberal source said.

The sale is expected to raise at least $6 billion, with the proceeds already factored into the budget to pay for Labor's core promise to remove 50 level crossings over two terms.

Opposition Leader Matthew Guy is understood to have written to Treasurer Tim Pallas and Labor leader in the upper house Gavin Jennings warning a clause to pay compensation to the buyer if a rival future port undercuts its business is untenable.

The Opposition has offered to allow the clause for 15 years, by which time the Port of Melbourne is expected to be at or close to capacity, minimising the risk of a big payout.

But instead Labor is now offering to include an annual cap on the compensation payout, equivalent to 20 per cent of revenue.

According to the opposition, this works out at about $60 million a year, or up to a $2.1 billion assuming the port will reach capacity in 2045, or $1.3 billion assuming it reaches capacity in 2031.

The proposed compensation calculation would see the state's exposure at somewhere between $1.3 billion and $2.1 billion in today's terms, the letter states.

The deadlock will add to Labor's growing list of political woes. If a compromise cannot be reached it will either force the government to negotiate with the Greens and five cross-benchers to pass its bill, or it will be forced to follow through with a threat to sell the port without legislation.

The lack of legislative reassurance would almost certainly dramatically cut the sale price, with some claiming businesses are already nervous about "sovereign risk" following Labor's decision to scrap the East West Link contract.

Mr Guy on Wednesday said he believed an agreement was "probably further off than it has been for some time". He accused Mr Jennings, who has been leading the negotiations, of "talking in riddles".

"I just want to have a straightforward conversation with the man," Mr Guy said.

Mr Jennings met with the Greens and the micro parties on Tuesday to test their willingness to negotiate. Given Labor needs an extra seven votes, some in the Labor Party believe negotiations with a diverse range of micro parties - including the Greens and the Shooters and Fishers Party - would be excessively complex.

The Greens are also unlikely to support the sale. Greens Leader Greg Barber said: "A lot of changes to the sale legislation have been proposed, but they just mitigate the damage from turning a public monopoly into a private one."