The move is part of an A$2.3bn (£1.3bn; $1.8bn) project in New South Wales.
The state government voted on Thursday in favour of the controversial decision, local media outlets reported, citing government sources.
The government has long planned to redesign the stadium to better suit the local sports played there, but critics say the project will waste money.
The plan was first floated in 2015 by the New South Wales government, and lawmakers have bitterly debated over it for months.
