The NSW government has spectacularly withdrawn its much-anticipated bid to stop industrial action on Sydney trains as the Transport Minister said he was not happy with how the dispute had been handled.

In a stark about-turn from his fierce attacks on the union movement on Monday, NSW Transport Minister David Elliot on Tuesday said the government had dropped the Fair Work Commission case, set to be heard on Wednesday, on the advice of senior counsel and in a bid to encourage the union to return to normalised train services.