Transport Secretary Chris Grayling has agreed to develop plans for an "affordable" Crossrail 2 scheme which could see London funding half of the project during its construction.
Mr Grayling said he would work with London Mayor Sadiq Khan to ensure the proposed north-south rail line running across London between Hertfordshire and Surrey was "fair to the UK taxpayer".
The capital has already shown it could foot the bill for half of the scheme over its life, but the pair said they want to see if London could do the same during the construction period.
Mr Grayling said the cost of the project, which is around £30 billion, meant it was important to get it right, and that he had agreed to develop plans with Mr Khan that are "as strong as possible".
At a meeting last week, the pair agreed the need for new infrastructure in the capital, as well as a funding package which "works for both London and the rest of the country".
They plan to examine ways to improve the scheme's affordability and maximise benefits ahead of the Budget this autumn.
Mr Grayling said: "I am a supporter of Crossrail 2 but given its price tag we have to ensure that we get this right.
"The Mayor and I have agreed to work together on it over the coming months to develop plans that are as strong as possible, so that the public gets an affordable scheme that is fair to the UK taxpayer.
"Following a successful outcome being reached I am keen to launch a fresh public consultation to help gather views to improve the scheme and clarify the position around the safeguarded route."
Mr Khan said he was "pleased" to have "reached an agreement to take this vital project forward".
He said: "We will continue to work together to ensure the project is value for money and provides the maximum benefits for jobs and growth in the region over the coming decades.
"I look forward to moving to the next stage of consultation."
Construction for Crossrail 2 - which would cost around £30 billion at 2014 prices - could start in the early 2020s and the railway could be open by 2033.
The line would run as far north as Broxbourne in Hertfordshire and as far south as Epsom in Surrey, passing through central London via places such as Tottenham Court Road, Victoria, Chelsea and Clapham Junction.
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