The government said the current locomotive-hauled train fleet operating on the Wairarapa and Manawatu lines was nearing the end of its life and was in critical need of replacement.
The beleaguered Wairarapa rail line had been plagued with reduced train speeds, bus replacements and new tracks that are too narrow, causing carriages to vibrate.
Transport Minister Simeon Brown said new rolling stock would be purchased and existing infrastructure upgraded to improve rail services for passengers travelling around the lower North Island.
"Delivering commuters more efficient and reliable travel options will increase productivity, support economic growth, and enable Kiwis to get to where they want to go, quickly and safely."
The upgrade would increase speeds on the Wairarapa line from 90kmh to 110kmh, result in fewer temporary speed restrictions across the network, and provide more frequent services, he said.
Brown said the government would be looking for value for money "ensuring that the procurement of new trains takes a no-frills approach that delivers real benefits for commuters.
"We are continuing to review the Metropolitan Rail Operating Model (MROM) to allow us to develop a more sustainable funding model for metropolitan rail, including who pays for what, and ensure the services and infrastructure is more focused on delivering a reliable service for passengers."
