A 1.1 kilometre tunnel under Victoria Road at Rozelle will be added to the WestConnex motorway at no extra cost to the project, the government says.
And large parts of a motorway interchange at Rozelle, planned to allow motorists to connect to and from the new toll-road to the Anzac Bridge and Victoria Road, will be built underground to allow surface parkland on top.
The need for an interchange at Rozelle was potentially one of the more contentious elements of the 33-kilometre motorway.
At one stage, vast surface ramps were mooted for the inner-city site.
But the government announced changes to the design of that interchange on Thursday, placing more of the project underground, and committing to cover over most of the existing Rozelle Rail Yards with up to 10 hectares of parkland.
"What we are announcing is a much better solution than we originally thought we would be able to provide," Roads Minister Duncan Gay said.
The new plan will require the acquisition of 27 properties on Victoria Road.
Those properties will be acquired to enable a four-lane tunnel - two lanes in each direction - to run under Victoria Road from the Iron Cove bridge to connect to the new motorway under the existing and disused rail yards.
Images supplied by the government on Thursday showed the western parts of those rail yards covered in parkland once the tunnels were built, though sections of the eastern half would be given over to motorway ramps.
Mr Gay said the proposed new tunnel under Victoria Road would remove up to 50 per cent of the traffic from that road around Darling Street.
Responding to scepticism about how the new tunnel could be build at no extra cost, the Roads Minister said there were significant savings from building a less complicated interchange at Rozelle.
"The fact that we have been able to remove the complexity of what we are doing in the interchange by coming in lower, instead of having a spaghetti junction above ground ... has given us a better outcome," Mr Gay said.
There would be no increase in the $16.8 billion overall cost of WestConnex, the government said.
Separately, Mr Baird said the state's Customer Service Commissioner, Michael Pratt, would fill a new role working with the RMS on the way it manages compulsory acquisitions. The Premier has conceded faults with the management of property acquisitions required for the mammoth motorway.
"For those that lose their homes this is a very difficult thing," Mr Baird said on Thursday. "We acknowledge that."
Mr Gay said the government had "no plans" to toll the new section of tunnel under Victoria Road.
"It works better for us in our business plan without a toll," he said. "And it is better for the community."
The interchange will form part of the third stage of WestConnex, proposed to be built by 2023.
Dennis Cliche, the chief executive of the Sydney Motorway Corporation responsible for the project, said a "Bus Rapid Transit" system featuring more frequent bus services on dedicated lanes would be built on Victoria Road by the time the motorway opened.
An Environmental Impact Statement for third section of WestConnex is due early next year.
Labor's transport spokeswoman, Jodi McKay, said the constant changes to the scope of WestConnex meant the community could have no confidence in what the government said about the motorway.
"How can you believe anything associated with this project?" Ms McKay said.
"This is quite a miracle where you are getting a kilometre tunnel, 27 houses and a better outcome supposedly and it's not going to cost anything," she said.
The former Labor mayor of Leichhardt, Darcy Byrne, said Mr Baird's claims about parkland and building a tunnel at no extra cost were "laughable," while Greens Member for Balmain, Jamie Parker, called the tunnel "a half-baked response to the traffic chaos that will occur around the Anzac Bridge".
