THE Victorian Government has pulled the pin on hosting the Commonwealth Games in 2026.

Premier Daniel Andrews made the shock announcement this morning blaming a blowout in the cost to Victorian taxpayers to more than $6 billion – more than twice the estimated economic benefit the games would bring to our state.

"When the Commonwealth Games needed a host city to step in at the last minute, we were willing to help – but not at any price, and not without a big lasting benefit for regional Victoria," Mr Andrews said in a statement.

"The government has advised the CGF and Commonwealth Games Australia (CGA) that the state will be terminating the Host Agreement.

"It is our aim to reach a rapid and amicable resolution of all contractual matters, including a reasonable settlement of costs incurred, to allow the CGF the opportunity to seek an alternative host city for 2026.

He said this decision not to proceed before any major building and supply contracts have been signed, meaning costs incurred to date have been relatively contained and promised those costs will be publicly disclosed once negotiations are complete.

The State Government had spruiked the games as a positive investment as it would deliver "lasting benefits in housing, tourism and sporting infrastructure for regional Victoria".

Mr Andrews said the government would stick to its commitment to deliver a $2 billion package to ensure regional Victoria still receives all the benefits that would have been facilitated by the games.

He also announced a new $1 billion Regional Housing Fund to deliver more than 1300 new homes across regional Victoria, a mix of social and affordable housing.

There will be a new $150 million Regional Tourism and Events Fund and Mr Andrews said all the permanent new and upgraded sporting infrastructure projects planned as part of the Games will still proceed and be completed as planned.

There will also be a new $60 million Regional Community Sport Development Fund to deliver new projects – including aquatic centres, indoor stadiums, lighting upgrades and walking and cycling paths, and $40 million for an All Abilities Sport Fund to remove the barriers of entry for people with a disability to get involved in sports through grants, scholarships and mentoring.

Further detail of the $2 billion regional package will be revealed after consultation with sporting codes, councils, tourism bodies and the community.