But the confidential study, commissioned by the Department of Transport and obtained by Fairfax Media, made a rosier assessment of another potential port site near the Werribee treatment ponds, concluding it would have a “low environmental impact”.

Labor and the Napthine government are at odds over the best location for Melbourne’s next container port, though both want to build one before the Port of Melbourne hits capacity within the next 10 to 20 years.

Freight movements make up about 8 per cent of Victoria’s economy, but data released on Tuesday shows Melbourne lost ground to Sydney in container movements and ship visits last year, prompting one maritime expert to predict Port Botany could overtake the Port of Melbourne as Australia’s busiest within two years.

The data, published by the federal Bureau of Infrastructure and Regional Development, shows the Port of Melbourne shifted 2.5 million containers last year to Port Botany’s 2.15 million. But Sydney’s share of global container trade has grown since 2011, while Melbourne’s has shrunk.

Sandy Galbraith, of Maritime Trade Intelligence, said Sydney had started using a third terminal while Melbourne still had just two, with a third due to begin operating in 2016.

“I wouldn't be surprised if by that time Sydney had overtaken Melbourne to become Australia's No.1 container port,” Mr Galbraith said.

The Department of Transport has already ruled out Labor’s Bay West proposal in Port Phillip Bay as too risky and has advised the Napthine government its favoured option at Hastings, south-east of Melbourne, is the only viable site.

But a working paper commissioned by the department presents a more nuanced picture of the pros and cons of four assessed sites between the Defence-owned land at Point Wilson and the market gardens at Werribee South.

Point Wilson, which Labor recently said is its preferred site for the port, rated poorly because it would damage sea grass beds and drive away the orange bellied parrot. The parrot's critically endangered status led the former Howard government to quash plans to build a wind farm in the state’s east eight years ago.

A second site just north of Point Wilson risked ruining protected shorebird habitat. But a third option between the treatment plant ponds and the Werribee River fared much better, with consultants GHD noting bird sanctuaries could be spared by building an offshore terminal.

"The location of the terminal and the transport connection is anticipated to have limited environmental impacts," the report found.

Natalie Hutchins, Labor’s shadow ports minister, said the findings showed the department was premature to rule out Bay West.

“It just shows that there are other alternatives and that this government has put all its eggs in the one basket with Hastings,” Ms Hutchins said. “Hastings doesn’t offer us certainty at the moment. Like the East West Link there has been no business case to go along with it.”

Ports Minister David Hodgett said Hastings was the only location that could cater for larger ships.

"This particular option is the least bad of a series of bad options," he said of the treatment plant site. "The fact is that you cannot get the bigger ships into any location within the bay without widening and deepening the heads, which poses huge environmental risk."