The prime minister insists East West Link is not dead, despite the Victorian government’s opposition and a consortium agreeing to walk away from the project.

Tony Abbott also says $3 billion in Commonwealth funding set aside for stage one and two of the tollway would remain in a “locked box” awaiting a Victorian government that would build it.

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The Andrews government on Wednesday announced a $339 million agreement with the East West Connect consortium to cover its costs sunk into the project, to finally end it.

Mr Abbott said not to proceed with the project was “wrong-headed”, and the ultimate cost to tax payers would be much higher.

“Yesterday was a bad day for Australia, a terrible day for Victoria, because … the Victorian government spent at least $640 million of taxpayers money not to build a road,” he told reporters.

“My pledge for the people of Melbourne, and Victoria, is that the $3 billion of Commonwealth dollars pledged to East West Link will remain in a locked box for the first Victorian government that is prepared to build this absolutely necessary piece of infrastructure.”

Mr Abbott said he would continue talks with the Victorian government about “other infrastructure projects of national significance” though these were not shovel-ready while East West Link was.

East West Link was “absolutely not” dead, Mr Abbott said.

“I think the Andrews government might be dead but I think the East West Link project is necessary, absolutely necessary, because Melbourne needs a second crossing.”

-AAP