Mr Barilaro said the state government would provide $954,000 from a $170 million "drought-stimulus" fund for projects that are "shovel-ready."

The rest of the money will be provided by Orange City Council and private industry.

The one-kilometre stretch of road will be improved from outside the Orange hospital to Cadia Road.

An adjacent bike path will also be upgraded to 2.5 metres wide from the hospital to Bloomfield Road to improve access to Gosling Creek Reserve.

Under the plan the road will be upgraded to the same standard as the section between Huntley Road and the hospitals.

"This is new funding, new money for projects that are ready to go," Mr Barilaro said.

He said the road upgrade would help develop the health precinct on Forest Road.

"We've been working with councils to put up projects that are shovel-ready and ready to go in relation to infrastructure works that can start immediately," he said.

"This is an upgrade that is required because of the changing landscape of this particular part of Orange and that is with the health precinct there is more demand.

"You can see significant investment already [the private hospital complex]."

Orange mayor Reg Kidd said the funding was aimed at stimulating growth in drought-affected areas.

He said Forest Road was a "very, very busy road" to the hospitals, agriculture institute, the Rural Fire Services headquarters and Orange regional airport that would get busier with planned growth at the health precinct.

"This last link here really finishes off the road right down to a major intersection," he said.

"We'll make sure we have people out here in the next two or three days. This will make a huge difference.

"It will separated and well-lit to a very high standard. It has to be because of the amount of traffic that will be using it. You are talking about ambulances, rural fire trucks, people coming to our city and going into Orange or going from Orange out to the airport.

"You have got to have a good road, a very impressive road. If you look at the buildings down there, the private hospital, the public hospital and what's coming around here it is a feature entrance to our city."

He said council was talking to the federal and state governments and several universities about developing the health precinct including the already-committed facilities for medical school students.

Cr Kidd said the road project would go to tender.