The issues mean the New Zealand Transport Agency has had to redesign the embankments and foundations for its new bridge at Lookout Point over the past year.
The NZTA has confirmed the increase, bringing the total for stage two of the project to $24.5 million.
The improvement project included work to widen the highway that runs south from Dunedin to a consistent four lanes between Andersons Bay Rd and Barnes Dr, which was completed at a cost of about $19 million.
The second stage involves widening and realigning the highway from Barnes Dr to Lookout Point, and includes the new bridge connecting Mornington Rd and Riselaw Rd.
The project hit significant below-ground problems that pushed completion back to late June this year.
New Zealand Transport Agency project manager Simon Underwood said those conditions were not foreseeable.
The geotechnical issues meant the agency needed to invest more money in areas of slope stabilisation above Burnett St, the excavation and replacement of soft soil layers under the new downhill carriageway and beneath the embankments leading up to the new bridge.
''To compound matters, an inactive fault line, and then a cavity in the underlying sandstone layer, were discovered close to where the foundations for the new Riselaw Rd bridge were to be built.
The agency knew from ''extensive ground testing'' undertaken before the work started construction was not going to be easy.
''However, the extent of the hidden ground problems was unexpected.''
The deeper excavation work went, the more issues were uncovered, and Mr Underwood said those could not have been detected by ground testing.
''As a result, we were required to completely redesign the bridge approach embankments, as well as bridge foundations and sub-structure - that is everything below the bridge deck.''
''While any cost increase isn't taken lightly, the risks of unpredictable geotechnical issues are an acknowledged reality with major engineering works such as this.''
Despite the cost escalation, the NZTA remained committed to building the new bridge.
