The A$5bn (£2.9bn) terminal will be located in the suburb of Badgerys Creek - 50km west of the city centre.

Prime Minister Malcolm Turnbull described the development as a "vitally important project" for both Sydney and the nation.

As part of the project, the Australian government would take on the airport’s building after the operator of Sydney’s existing airport - Sydney Airport Group - declined the job citing the project’s financial risks, BBC News reports.

The decision came as a means of relieving pressure on Sydney’s Kingsford Smith airport and comes after more than 70 years since the idea was first conceived.

"The airport will be a major catalyst for jobs and economic growth in western Sydney, injecting more than A$1.9bn into the economy during the construction phase alone," Turnbull added.

"It is expected to deliver 9,000 new jobs to western Sydney by the early 2030s, and 60,000 in the long-term."

The Sydney Airport Group highlighted "risks" to investors including demand and growth potential and construction costs as its reasons for turning down the new airport project.

Details of the plan will be announced next week when Turnbull’s government unveils its annual budget.