But the Waterloo station could mean the destruction of the area's housing commission towers, if included as part of a plan by UrbanGrowth NSW to redevelop the area.

Premier Mike Baird and Transport Minister Gladys Berejiklian announced in June that, if re-elected, they would privatise more electricity assets to pay for an underground rail crossing of the harbour that would eventually link with the existing Bankstown line from Sydenham.

Maps released at the time did not include any station locations for the new line between Central and Sydenham, despite this being a relatively densely populated corridor with high public transport use.

But multiple sources have since told Fairfax Media that Transport for NSW has started negotiations about extra station sites, and a split has emerged between two locations to the east and west of Redfern Station.

A Sydney University station, possibly around Victoria Park near Glebe, would fit with the university's ambitious expansion and property development plans.

It would also allow direct access to the university by students using the new line, which is planned to extend from the north-west rail link at Chatswood and connect to the Bankstown line, taking pressure off Redfern Station.

But UrbanGrowth NSW, the government's property development arm, is pushing for a station at Waterloo.

UrbanGrowth NSW is responsible for driving the redevelopment of the precinct around Waterloo and near Redfern station, but has not detailed what its plans for the area are. A spokeswoman said "at this stage" UrbanGrowth NSW had no plans for redevelopment at Waterloo. 

But multiple sources say the organisation's plans are now being linked to whether it could secure a new station around Waterloo and the Danks Street precinct. For geographic reasons - the trains need to travel to Sydenham - it would not be possible to build stations both at Sydney University and Waterloo.

A spokeswomen for Sydney University would not comment on negotiations, while a spokesman for Planning Minister Pru Goward would not comment on the government's plans for Waterloo's two 30-storey housing commission towers, known as Matavai and Turanga.

A Transport for NSW spokesman said the department provided a briefing for the University of Sydney in June on its rail expansion program, being called Sydney's Rapid Transit Network.

Trains on the new line would be the single-deck driverless trains planned to operate on the north-west rail link project to Rouse Hill.

As part of that project, the existing Epping to Chatswood line will be shut for up to seven months to convert signalling systems and stations to accommodate the new trains.

The planned extension of this line across the harbour to link with the Bankstown Line raises the prospect that that line will also need to be shut down for months to allow signalling systems to be upgraded.

A spokesman for community group REDWatch, Geoff Turnbull, said: "The current proposal in which they don't have anything between Central and Sydenham is a crazy proposal."

But Mr Turnbull questioned why a new line was needed through the Waterloo area, when the existing Airport Line travels under that area. It is understood, however, that installing a new station on the Airport Line could require closing that line for months during construction.

In an email, Ms Berejiklian said: "If the NSW government receives the mandate at the next election, there will be plenty of opportunity for everyone to have their say on the project."