The NSW Department of Education will invest more than $60 million into new inner Sydney schools in a bid to curb a chronic shortage of school places.

On Wednesday, NSW Education Minister Adrian Piccoli announced a new kindergarten to Year 12 school in Alexandria with capacity for 2200 students.

The initiative will barely cover the expected enrolment surge that will come with the nearby Green Square development, with 60,000 residents swarming into the area over the next decade.

At the same time, the government will move students out of Cleveland Street Intensive English High school onto the existing Alexandria Park senior campus.

The shift means that construction can finally begin on the 1500-student, high-rise high school in the middle of the Sydney CBD, as enrolments at nearby Bourke, Crown and Fort Street Public Primary schools swell with the children of inner Sydney residents.

"It is a significant challenge," said Mr Piccoli. "Land in the inner city is always a challenge and that means putting more students onto sites."

The decision comes after Fairfax Media revealed an $11 billion funding shortfall that has compounded the department's metropolitan enrolment crisis.

In total, the NSW school system will be required to cope with an extra 225,000 students by 2031, 165,000 of whom will be in the public system, with 90 per cent of that increase in Sydney.

Schools across the city are already being forced to split lunch times, ban running in playgrounds and increasingly rely on demountables in order to deal with enrolment surges as well-off inner-city parents increasingly look to the public system.

"There is such strong demand for public education because of the confidence people have in the education system," Mr Piccoli said.

Labor's education spokesman, Jihad Dib, said the $60 million commitment was a start but just the tip of the iceberg when it came to new school places.

"For [the government] to be championing itself as the public school saviour frankly rings hollow," he said.

While the state struggles to catch up with enrolments, its future school finances took a multibillion-dollar hit in the federal budget on Tuesday.

The Commonwealth only committed to a quarter of the recommended Gonski funding, through a $1.2 billion increase in education funding to all the states and territories.

The move has frustrated NSW Premier Mike Baird, NSW Treasurer Gladys Berejiklian and Mr Piccoli, who have been lobbying their Canberra Coalition colleagues for the past two years to honour the needs-based Gonski agreement.

"We have been arguing about this for a long time," said Mr Piccoli.

"If the Coalition wins the federal election, I will continue to argue with the Commonwealth, and if their budget position improves, we will be going back to them and saying we want [the recommended funding].

"Gonski is fairness. It is about every student having exactly the same opportunity in life when at school. You don't choose who your parents are, you don't choose if your parents are drug addicts or if they are lawyers and doctors," the Education Minister said.

"As a society we have an opportunity to level that playing field at school. That is what Gonski is all about".

Cleveland Street High School is scheduled to open in 2020, while the Alexandria Park campus is due to be completed by 2022.