The City of Greater Bendigo unveiled plans in October for a $28 million expansion of the gallery with $21 million sought from the federal and state governments.

The City hopes funding will be approved in coming months to allow works to proceed, so they can be finished in time for the 2026 Commonwealth Games.

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Funding for the gallery redevelopment includes $3 million from council, $2.5 million from the Bendigo Art Gallery board and $1.5 million in philanthropic donations.

But the project cost is expected to rise, with the City of Greater Bendigo now forced to recalculate due to inflation and increased construction costs.

In February, council applied for a $10 million grant in the latest round of the Building Better Regions Fund (BBRF). The redevelopment is contingent on funding being secured, but the newly elected Albanese government has placed the BBRF on hold while a review of the program is completed.

Council chief executive Craig Niemann said if funding was not secured and work started on the Bendigo Art Gallery development by mid-2023, the project would be sidelined until after the 2026 Commonwealth Games.

"The art gallery is probably sitting here right now," he said. "The Commonwealth Games is an important milestone. We don't want a lot of construction happening in the city centre during the Commonwealth Games.

"If we're going to do these things, and we want them to happen pretty quickly and get them finished by then.

"If we don't get the funding for (the gallery), we probably pocket (the project) until after the Commonwealth Games and focus on some other projects but it probably sits as the council priority right now."

A 2021 report considered by Greater Bendigo councillors notes the gallery expansion is needed to secure "the gallery's long-term viability and maintain its position as a leading regional gallery in Australia".

It also cites the potential for a positive contribution to COVID-19 economic recovery during construction and ongoing operation of a larger facility, that allows for more blockbuster exhibitions to boost tourism and regional visitation.

Bendigo MP Lisa Chesters said she was concerned council had set its expectations too high without federal funding being committed.

"It is a good project but I do feel like (council) jumped too soon with announcing closure dates when they haven't been able to confirm funding for this expensive and significant project," she said.

"For this particular round (of the BBRF) the minister responsible, Catherine King, immediately asked for advice from the department and an audit because of the history of the previous government and how they rorted and pork barreled these funds.

"Labor will outline what it will do in relation to this fund and a number of the former government's program in the late October budget."

Read more: Bendigo Art Gallery to close for two years during redevelopment works

Ms Chesters said the BBRF was a competitive grants fund with the structure of the fund also being reviewed.

"The current minister is reviewing the structure of this fund and this round," she said

"I do feel for local organisations that did put applications into that round. We need make sure governance is right around this fund. It's a competitive grants process, even if it goes ahead in some other form, the project has to stack up with other projects across Australia.

"It's hard to secure $20 million in such a short time frame. Compared to the airport which took five years to secure $5 million."

Following the Bendigo Airport upgrade breaking ground last week, Mr Niemann said council would turn its focus to other projects that required three tiers of government funding.

Among those projects were the Bendigo Art Gallery development, the National Chinese Museum of Australia at the Golden Dragon Museum and the development of the Bendigo Regional Employment Precinct - each requiring funding from local, state and federal government.

Mr Niemann said the 2026 Commonwealth Games-related upgrades were also earmarked as a priority, but council was "still learning about that at the moment".

"But there is an opportunity for us to tap into the federal government if there's a significant uplift," he said.

"If we can add our money with state money and get some federal money, that'll lift (those projects) up again."

When it comes to the regional employment precinct project there are a lot of moving parts.

"That industrial land we are rezoning, it needs a lot of infrastructure brought to it - water, power, sewer and roads - to make sure that it's able to be developed and then available for businesses to grow and develop out there," Mr Niemann said.

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