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The studio, where thousands of musicians have made recordings, is due to be demolished in early 2020 as work on the new music, theatre and performing arts complex begins.
If the virtual project gets funding, it will allow musicians in the future to enter a virtual replica of Albany St - and the recordings they make will have the studio's acoustics.
The work has brought together people from the university's music information science and computer science departments and the School of Surveying, and is being supervised by information science head of department Prof Holger Regenbrecht, who specialises in virtual and augmented reality.
He was unsure of the project's budget.
''The main idea is to preserve what's there because that studio is amazing. I always loved it, and it's a mythical place.''
The first stage will involve surveying a 3-D profile of the room, and at the same time sophisticated acoustic recordings are being captured from every part of the studio.
''What we want is a dynamic environment so you can walk through it and the environment sounds different depending on where you are. Once we have that, we want to put musicians into that room virtually.
''We might offer Albany St as a virtual place you can come to even if you're in Sydney or New York. There's plenty of potential if we get enough resources to get it finished.''
The work of capturing the images and acoustic recordings is almost complete. Stage two - building the virtual model - is much more complex and will require time and funding to complete.
The university has said the best-case scenario for completing the studio is late next year.