The Government will consider assembling new KiwiRail locomotives in New Zealand instead of overseas, State Owned Enterprises (SOE) Minister Trevor Mallard said.
But the National Party says the plan is "an idea from the 1950s" and would waste taxpayer money.
The Government bought rail operator Toll this month for $690 million. The purchase also included $140 million in debt.
Finance Minister Michael Cullen has said an $80 million injection will be needed over the next five years to keep rail running. He has also signalled a "reinvestment package" of about $380 million which will include new locomotives.
Mr Mallard today said although the components of those locomotives would be bought overseas the Government was investigating the possibility of assembling them in New Zealand.
"There is no doubt there is a possibility of assembling locomotives in New Zealand," he said on TVNZ's Agenda programme.
"It's probably a very logical thing to do from a currency perspective, from a value for money perspective."
Mr Mallard said expertise would have to be developed if the plan was to go ahead, but the work could be done at remaining rail workshops in Woburn, Lower Hutt.
He did not know how much investment would be needed to enable the trains to be assembled locally.
He said Cabinet was currently deciding whether to approve a scoping study.
But National's SOE spokesman Gerry Brownlee said the plan was "daft".
"New Zealand's economic well-being will not be served by returning to the glory days of NZ Railways, which everyone knew was a huge waste of taxpayer resources," he said.
"New Zealanders still don't know what the final bill for the railways buy-up is, let alone the cost of something like this."
He said the fact the locomotives would be assembled in Mr Mallard's Lower Hutt electorate suggested it was little more than a "save-my-seat campaign".
What do the stars have in store for you today?
Test your mind with our puzzles
The Little Things, Dilbert, Tom Scott and others