THE Federal Government will spend about $134 million fixing mud holes in the rail track between Sydney and Melbourne.

Australian Rail Track Corporation chief executive John Fullerton has told a Senate hearing there currently are about 65km of mud holes in the track - almost seven per cent of the 1500km track.

The upgrade is needed to reduce the number of slow spots on the line.

Mr Fullerton said XPT passenger trains travelled the route at a top speed of about 160km/h but in some areas had to slow to as little as 10km/h because of the track condition.

When initial upgrade work began in 2007, the ARTC believed it could cope with the ballast problems and fix them in its normal five-year maintenance schedule, Mr Fullerton said.

However, record rainfall in 2010 exacerbated the problem.

"That's when they manifest, it's when it rains the water cannot drain away from the ballast formation," Mr Fullerton told an estimates hearing in Canberra today.

The work involves rebuilding the formating on a 20km section, cleaning the shoulder ballast over the full distance, and putting in new drains and grinding the rail.

"We're confident that once we complete that project that that track will be in the condition similar to the rest of the network," Mr Fullerton said.

The work began in December and is expected to be mostly finished in about 18 months.