The work, estimated to cost over VND10 trillion ($432.83 million), is expected to boost tourism between Lam Dong Province in the Central Highlands, home to Da Lat, and Ninh Thuan Province in the plains below, where Phan Rang is located.
Pham S, Deputy Chairman of Lam Dong, said it would need to be approved by the National Assembly and government.
The province has urged the investing company to complete the feasibility report for the work, he added without identifying it.
The Da Lat – Phan Rang rail route is one of only two in the world to use rack rails.
The track, laid by the French administration of Indochina in 1932, runs a total length of 84 kilometers, including 40 km of rack rails.
It was abandoned during the Vietnam War and dismantled after the North Vietnamese victory in 1975.
Only a seven-kilometer section between Da Lat Railway Station and the nearby village of Trai Mat remains and is used as a tourist attraction.