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The two councils have together committed up to $80,000 to pay for a feasibility study, to be prepared by consultants MartinJenkins and Roam, detailing the potential for the project.
A report detailing options for a trail between the two centres, together with the likely costs, funding avenues and community benefits, is expected by the end of the year.
Staff from the two councils will then meet to discuss the findings and plan a way forward, including putting the project to elected representatives for decisions.
DCC transport group manager Richard Saunders said when contacted the idea of a joint approach had originally been suggested by Waitaki council staff.
The proposed trail would boost cycle trail tourism and recreational opportunities for residents, bringing benefits to Dunedin, Oamaru and the communities in between, he said.
It would also provide an important link in an expanding network of cycle infrastructure being developed, or planned, across Otago, he believed.
It would link the Alps 2 Ocean trail - New Zealand's longest continuous cycle trail, stretching from the Southern Alps to Oamaru - with Dunedin.
Eventually, it would connect to other trails, like the Clutha Gold trail when it reached as far as Mosgiel, and the tunnels trail link between Mosgiel and Dunedin via the former Chain Hills rail tunnel, Mr Saunders said.
''When you combine that with the other cycling infrastructure ... it starts to become quite an exciting picture as a network.''
Waitaki District Council recreation manager Erik van der Spek said the feasibility study was the first ''concrete work'' on a project that had been on the council's to-do list for years.
Any trail would be at least as long as the 112km journey by road between Dunedin and Oamaru, was expected to cost ''millions'' and take years to build, if it proceeded, Mr van der Spek said.
It would have other obstacles to overcome, including finding a suitable route and deciding how best to cross rivers along the way, he said.
That could require clip-ons to existing bridges or the construction of new bridges for cyclists, he said.
The study would also look at potential funding sources, such as the NZ Transport Agency, Provincial Growth Fund or the Ministry of Business, Innovation and Employment, he said.
Both councils' elected representatives would also be presented with the results of the feasibility study, once finished, and would have to decide how they wished to proceed.