The City of Melbourne has announced a $12 million project to create two new open spaces in the CBD and Southbank.

$1.5 million will be spent upgrading Elizabeth Street between Flinders Street and Flinders Lane, turning into a pedestrian-friendly boulevard.

“When you look at Elizabeth Street it should be one of Melbourne's great boulevards, and it's not,” Deputy Lord Mayor Arron Wood told ABC Radio.

Council data shows that over 9,300 pedestrians use the area in the between 8 and 9am, compared with just 73 southbound motor vehicles.

Community consultations will be held in June, before construction gets underway later this year.

The funding is part of the council's 2017-18 draft budget unveiled this week.

The draft budget also puts forth $11 million for the first stage of the $35 million Southbank Boulevard project.

The project should create 2.5 hectares of public space in Southbank, Melbourne's most densely populated suburb.

“If we had to purchase that [land] on the open market it would be about $140 million, so this is a really wise way of delivering new open space,” Cr Wood said.

Additionally, an area near the Victorian College of the Arts will be redesigned to better cater for street performances and public events.

Southbank Boulevard will have to be realigned as well.

“You'll see new bike lanes, you'll see outdoor [play] equipment, you'll see a lot more street planting to cool the city,” Cr Wood said.

The draft budget includes $29 million for the redevelopment of Queen Victoria Market, which includes the construction of a market pavilion for traders forced to move during the renewal works.