Health NZ will be weighing up the two options for the new Dunedin Hospital

The Governments said it either needs to scale back the project's main building or swap it out in favour of a "staged development" on the old site, to keep it within the 1.88 billion dollar budget.

Health NZ Head of Infrastructure Delivery Blake Lepper says costs have been creeping up for sometime.

He says after construction began on the main outpatients building, the real costs emerged and they realised they had a problem.