It will see the ANZ Stadium, which is what the Olympic venue is now known as, rebuilt in 2019 as a 75,000-seat stadium, possibly with a retractable roof.
This deal, which will now go ahead, will see the Moore Park football stadium torn down from next year, with work at the Homebush site of the Olympic Stadium - corporately known as ANZ Stadium - set to begin in 2019.
The government hopes the project will make ANZ Stadium the number one "rectangular" ground in Australia, with a retractable roof and a 75,000-seat capacity.
A $300 million redevelopment of Parramatta Stadium due to be completed by 2019, as well as the government's $200 million purchase of the Olympic stadium lease, brings the total cost of the stadiums package to $2.5 billion.
"Fans will be closer to the action than ever before, with steep seating creating a colosseum-inspired wall of sound and colour, enhanced with the world's most advanced technology", Berejiklian said.
The Premier has stressed the importance of "modern facilities" in order to attract the biggest sporting events in the world, such as the FIFA Women's World Cup and Rugby World Cup.
Her government said the two venues now attract a combined 3.5 million visitors per year and contribute more than Aus$1 billion to the state's annual economy.
Staggering the development times will allow the NRL Grand Final to continue be held at the former Olympic stadium while Allianz Stadium is rebuilt.
Opposition leader Luke Foley partially backed the plan, saying ANZ stadium was in need of an upgrade but opposed the additional funding for the Allianz stadium, which he's branded a "white elephant".
Why are we doing this? They struggle to get 10,000.
Sydney Football Stadium (L) will be demolished and rebuilt as part of the plan.