Otago has an ageing population and a plan to downgrade Dunedin Hospital will likely end in more deaths, a union leader says.

Minister of Health Shane Reti and Minister of Infrastructure Chris Bishop announced on Thursday the planned redevelopment would either need to be reduced or done in stages.

A report commissioned by the government found the current plans could not be delivered within the current $1.88 billion budget. Bishop said it could cost up to $3 billion to build the new Dunedin Hospital as currently planned.

Nurses' Organisation national president Anne Daniels told Morning Report there had been a "lot of pushback" on the $3b figure, with Labour health spokesperson Ayesha Verrall challenging the sum in Parliament on Thursday.

The people of Otago were not accepting the decision to downgrade the hospital, she said.

"We've been here before - we can push back and decisions can be changed."

The region had an ageing population, which meant patients were admitted to hospital with higher needs and stayed longer, she said.

A smaller hospital would only exacerbate an already difficult situation, she said.

"We're already heaving at the seams - we can't actually provide good, timely, safe care right now."

Nurses' Organisation national president Anne Daniels, far right, with Minister of Health Shane Reti at the union's AGM in September. PHOTO: NZNO / supplied

"If we're going to be forced to move into a smaller facility, with less resource and fewer beds, that just means people are literally going to die waiting for care - and I lay that squarely at this government's table."

The existing hospital could not be renovated, she said.

Morning Report host Corin Dann asked if the redevelopment of Dunedin Hospital might come at the expense of other regional facilities in the South Island.

The government was using "divide and rule... a very good political ploy", she said.

She said regional MPs were "furious" they were being used as an excuse for Dunedin Hospital not to be built, she added.