Gladys Berejiklian is pressing ahead with plans to move Sydney's Powerhouse Museum further west

The New South Wales government will relocate from the inner-city Powerhouse Museum 25 kilometres further west to Parramatta as part of a new arts and cultural precinct in Western Sydney, despite widespread opposition to the proposal, premier Gladys Berejiklian has confirmed.

But the move has raised more questions about plans for the existing site and how the government will pay for the move, originally announced by former premier Mike Baird in 2015, which some have estimated may actually cost up to $2 billion.

Berejiklian said the government will retain an arts and cultural presence at the current Ultimo site and is undertaking a business case to determine its future.

"I don't just want it to be residential units," she said.

Two years ago, Baird planned to sell off the historic powerhouse building to developers to pay for the move.

The existing museum, in the former Ultimo power station, opened in 1988 and houses a range of technological artefacts, including a steam locomotive built by Robert Stephenson in 1854, which hauled the first passenger train in NSW. In 2012, it hosted the record-breaking Harry Potter exhibition and subsequently, the equally popular Star Wars exhibition.

“The relocated Powerhouse Museum in Parramatta will be the anchor for arts and culture for the region, and now the site for the museum is locked in," Berejiklian said.

“The Powerhouse at Parramatta will include the best exhibits currently at Ultimo, and will build on them. The new Powerhouse in Parramatta will be bigger and better than anything this state has seen.”

Only 10% of the museum's collection can be displayed at the Ultimo site.

The news comes just days after the premier argued that the government's decision to abandon five council amalgamations in Sydney was in part because she had listened to the people. Today's announcement ignores widespread criticism of the Baird plan, including experts who labelled the move "madness".

More than 10,000 people signed a petition against the relocation plan, and last year 170 prominent people, including Cate Blanchett and Andrew Upton, businessmen Geoff Cousins, Graeme Wood, Trevor Kennedy, Jack Cowin, and Penelope Seidler published an open letter calling the move "folly".

"Nowhere else in the world are governments moving major museums away from the heart of their cities," the letter said. "Instead they are building satellite museums to display the collections of their great museums."

The $140 million deal will see the government buying the former David Jones carpark from council as the museum site, which will be renamed as the Museum of Applied Arts and Sciences.

The council has pledged $40 million from the sale to arts and culture over 20 years and the state government will become an equal joint-venture partner in a $100 million redevelopment of the Riverside Theatre.

The announcement comes a week after the NSW government quietly shelved plans to build a $10 million lift for to the Sydney Harbour Bridge 12 months after announcing the plan in a media blitz.

The project was put on hold "due to the limited availability of funding in the 2017-18 budget", but the government says it remains "committed" to the project.

Last month the NSW premier announced a budget surplus of $4.5 billion this financial year, $500 million more than predicted six months earlier.

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