Tasmania has come out the winner after the federal government said it would pay for almost half of the initial costs to set up the Marinus Link power project linking the island state to the mainland.
The move comes after the Tasmanian Liberal government had said it wouldn't fund it "at any cost", casting doubt on the project.
Premier Jeremy Rockliff had faced pressure to reveal the growing costs of the project, said to be more than $3 billion for the first stage alone, after losing two MPs over the issue and now governing in minority.
But on Sunday, federal Energy Minister Chris Bowen said his government had reached a new funding deal with Tasmania under which the Commonwealth would increase its share in the joint venture entity to 49 per cent.
Mr Bowen said the agreement was a "game-changer" that would get the project off the ground.
"This updated agreement will not only deliver the benefits of Marinus Link, it will be cheaper to Tasmanians," he said.
He said the deal was updated to reflect the reality of globally increasing costs.
"We're not going to let that get in the way of getting the job done, because it's so important for renewable energy, it's so important for Tasmania's energy security, and it's so important for jobs," he said.
Tasmania's equity share will now be about 17.7 per cent and Victoria's will remain at 33.3 per cent.
Mr Rockliff said the new deal would bring jobs, economic growth, energy security and lower power prices, with the state now investing its fair share and no more.
He told reporters he'd driven a hard bargain.
"I'm very pleased we've been able to land this on the right side of our line in the sand. The deal has landed very firmly on Tasmania's side", he said.
"We understand the importance of this project, not just for Tasmanians but for the whole country. That's why we wanted the best deal."
The Tasmanian government last month refused to detail the cost blowouts of the proposed undersea link to the mainland, saying contract negotiations were ongoing.
Tasmania's Energy Minister Guy Barnett said the state had initiated talks with the federal government to find an alternate funding arrangement.
"It's an opportunity to increase supply, and deliver lower power prices," he said.
The costs had blown out significantly from the initial $3.1 billion, with that price tag now attached to just the first stage of the project.
Marinus Link is a proposed electricity and telecommunications interconnector between Tasmania and Victoria to allow excess energy generated on the mainland to be stored in Tasmania's hydro storage, dubbed its Battery of the Nation project.
The project will be focused on one cable in the first instance, with negotiations to continue on a second cable.
Christine Milne, spokesperson for the Bob Brown Foundation slammed the move to focus on one cable first.
"One for the price of two, what a bargain!" she said.
The government said modelling found the majority of the benefits from the Marinus Link project would be realised from the first cable.
Tasmania will have the option to sell its stake to the Commonwealth upon commissioning of the project.
The Tasmanian government estimates its investment is now between $106 million and $117 million.
The state's Labor spokesman for energy Dean Winter said he welcomed the federal government taking on a bigger role in the project.
"Today's announcement means more Chris Bowen and less Guy Barnett, and that is the best news Project Marinus could hope for after 10 years of non-delivery by the Tasmanian Liberals," he said.
"It is a nationally significant project and it needs serious people delivering it."
The Tasmanian Greens slammed what they called secrecy about the announcement, and accused the state government of treating Tasmanians like "mushrooms" over the deal.
The project has a planned completion date of 2028 with Marinus Link CEO Caroline Wykamp saying Sunday's announcement was a signal of confidence for the project.
"Marinus Link is more than an interconnector; it's an enabler," she said.