Melbourne's third major AFL stadium planned for near docklands

A third major footy stadium could be built close to the Docklands as AFL clubs struggle to make money at Etihad Stadium and the MCG.

The State Government is preparing to sanction a $2 million feasibility study into the development of a 40,000-seat stadium at the old E-Gate site - just down the road from Etihad Stadium.

It follows reports some clubs will be forced to pay to play matches at Etihad Stadium this season after venue management withdrew commitments to provide fixed returns.

The AFL has already taken Etihad Stadium management to court and is in a major stand-off with the MCG Trust.

The Herald Sun believes Premier John Brumby is actively investigating the third-stadium proposal ahead of next week's state Budget.

Mr Brumby is believed to favour a new stadium as part of a residential and commercial development at the 20ha site. The disused railway land is owned by government authority Vic Track, but will be surplus to needs from 2014.

The government is believed to be considering a plan to give the stadium site to a developer who can guarantee to have a new AFL ground up and running by 2017.

The Vic Track site is opposite the broken Southern Star Observation Wheel and close to North Melbourne train station, which is being upgraded.

The prospect of a new stadium could prove a trump card for the AFL as it attempts to negotiate better deals for the clubs.

Clubs such as the Western Bulldogs and North Melbourne face a sharp drop in revenue as the home side at Etihad Stadium if their crowds fall below 40,000.

The $2 million government grant to Major Projects Victoria in next week's Budget will finance an investigation into the feasibility of a stadium and the development of up to 2000 residential units and 240,000sq m of office space.

The focus will be on environmentally friendly and socially affordable housing.

A government spokesman confirmed the $2 million budget for the site study.

"A range of ideas have been put to the government," he said.

"The Brumby Government will ensure that appropriate planning is carried out so that the site is put to the best possible use.

"It is an important strategic site and the government will consider a range of uses."