Ms McKay said the developer had gone into Newcastle and bought properties with its "eyes open" and its demands to rip up the line were unacceptable.

Answering questions at the inquiry into budget estimates for the Hunter, Ms McKay said she wanted to challenge GPT to back up its claims on the rail line with evidence of community support.

Opposition Hunter spokesman Mike Gallacher asked Ms McKay if she was prepared to risk the development over 2000 metres of rail track.

"I can assure you the Government will not give in to threats by developers," Ms McKay said.

She said a $650 million investment in Newcastle would be "most welcome" but it was disappointing it would now hinge on rail.

"The developer went into this with their eyes wide open or at least they should have," she said.

"At no time when they were buying up properties around Newcastle did they say the development would hinge on the removal of the rail line."

She said when the removal of rail was debated in 1996, it was believed it would lead to longer commuting times, more cars in the CBD and would affect residents across the Hunter.

"People liked the ease of catching a train right into the CBD," she said. "This is not the time for knee-jerk reactions but it's time to listen to the community and I challenge the developer to back up their claims with some rigorous research to see what residents want, and not just the business community."

Ms McKay said she hoped the Federal Government would become involved through its new Major Cities Unit.