Prime Minister Tony Abbott appears to agree that Victoria’s East West Link project is dead.

Mr Abbott has told Victorian Premier Daniel Andrews that the controversial $6.8 billion road/tunnel project would not be built.

Mr Andrews said it was “fantastic”, and the state is now looking for new projects.

“We're going to do some really hard work in coming weeks and months to identify those projects, and I do hope we'll have more to say about that in the future,” Mr Andrews told reporters.

Mr Andrews has previously pledged to use the $3 billion of federal money saved by scrapping East West to boost suburban rail projects, but Tony Abbott appears to prefer roads.

The Prime Minister pointed to the West Gate Bridge in Melbourne's west and the Hoddle St intersection in the east as key problems.

“These are the choke points of Melbourne traffic and these are the things that need to be addressed by a major new piece of infrastructure,” Mr Abbott told ABC radio.

“Now if East West Link is off the table as far as the Victorian government is concerned, let's see what else might be possible that will address these major bottlenecks and which will be worthy recipients of major commonwealth government funding,” he said.

Contracts signed by the previous Coalition government could still see the new Labor government forced to pay $1.1 billion in compensation for axing the road.