Work has begun to expand capacity at Port of Melbourne.

Work has begun on the $1.6 billion project to expand capacity at the Port of Melbourne.

The works at Webb Dock have been expedited to enable Melbourne's third container terminal to be operational by 2016.

Minister for Ports David Hodgett says the competitive bidding process for the right to operate the container and automotive facilities is progressing well.

"The market offerings to be a part of the Port of Melbourne at Webb Dock are well subscribed by private sector operators who are fiercely competing for the rights to develop their businesses here."