NSW Premier Gladys Berejiklian says her government won't be held to ransom by a Spanish subcontractor building the delayed Sydney light rail project to the eastern suburbs.
Acciona, which is responsible for the light rail's construction under lead consortium ALTRAC, has reportedly demanded an extra $1.2 billion from the government.
Lawyers for the Spanish firm claim the government misled the contractor on the complexity of utilities work involved and has implemented a "go-slow".
But Ms Berejiklian on Monday said the demands were "completely unjustified".
"We will not be held to ransom and we will not be forced to do anything that is not in the best interest of the taxpayer," the premier told reporters in Sydney.
The project was initially meant to cost $1.6 billion before a $500 million blowout. The reported $1.2 billion demand from Acciona would more than double the original price.
Ms Berejiklian said it wasn't the first time a contractor had attempted to prise more money from the government.
"Every major project, from time to time, has contractors that try and get more," she said.
"(But) we won't be held to ransom by anybody who suggests what they signed up to is not what they want to achieve anymore."
Transport Minister Andrew Constance on Saturday said the company must end the alleged "go-slow" and deliver what they were contractually obliged to deliver.
"We're not going to get fleeced by anyone ... we're an angry customer at this point in time," he told reporters.
"They need to get back to work, desist in their go-slow and stop disrupting people and in particular, they've got to meet their obligations."
Comment has been sought from Acciona.