A developer involved in the recently scuttled Moynihan Station project said he is confident that construction will soon begin on an even larger alternative plan that involves building a new Madison Square Garden inside the Farley Post Office building, renovating Penn Station, and erecting office towers in the surrounding area.

At a real estate conference yesterday, billionaire developer Stephen Ross of the Related Companies said strong support from Mayor Bloomberg’s office and the incoming Spitzer administration would lead to final approval of the megaproject next year, and that construction on a new arena would begin in early 2008. Mr. Ross would partner with Vornado Realty Trust. The project is expected to cost billions, including more than an estimated $1 billion in public subsidies, and take years to complete.

The 10 million square feet of office space in the plan is more than is planned for ground zero and would dramatically refashion a Manhattan neighborhood that, with the exception of One Penn Plaza, has long been known more for retail and fast food than for class A office space.

After nearly a decade of planning, Governor Pataki’s $900 million Moynihan Station project, which would have transformed the eastern half of the landmarked Farley Post Office building into a transit hub to relieve congestion at Penn Station, was effectively killed last month by the Assembly speaker, Sheldon Silver.

Mr. Silver, a Democrat, said that he preferred Vornado and Related’s more ambitious plan, but top state officials said that Mr. Silver’s rejection was politically motivated, to give the incoming Spitzer administration the chance to take credit for the project. Pataki officials, mad at Mr. Silver, threatened to scuttle existing agreements with the developers and force the next administration to start from scratch, but so far they have not moved to do so. They said that any reincarnation would take years to complete.

Pataki administration officials said yesterday that Mr. Ross’s projections for beginning redevelopment of about four full city blocks about are wildly optimistic. They said that negotiating an agreement between public and private entities, producing concrete design and financing plans, arranging for public subsidies, conducting additional environmental tests and acquiring necessary approvals would take a lot longer than Mr. Ross predicted.

The president of the Moynihan Development Corporation, Robin Stout, said in a statement that the delay caused by Mr. Silver’s vote “injected considerable risk and uncertainty both legally and financially to a project that in no way precluded the larger goal of incorporating Madison Square Garden into the plans.”

Another hurdle to the project is an ongoing impasse between the city and Madison Square Garden about a $10 million a year tax break that the Garden wants to transfer across the street to their new location. The Bloomberg administration has said they are unwilling to transfer the tax break, which was doled out in the early 1980s when the arena’s owners threatened to move the venue out of the city.

A spokesman for Madison Square Garden, Barry Watkins, said in a statement yesterday that there has been “considerable activity regarding the possibility of Madison Square Garden moving to the Farley building in order to determine if it is preferable to our completed renovation plan.”

Governor-elect Spitzer is now active in moving the Penn Station project forward, and sources said that he could seek a resolution to the current impasse in his first 100 days in office. Mr. Spitzer has named a member of his transition team, Patrick Foye, a lawyer, to work on the plan and convene meetings with the major players, according to sources familiar with the project.

A spokeswoman for Mr. Spitzer, Christine Anderson, said yesterday, “Eliot has asked his transition team to review options for Moynihan Station and other infrastructure projects.”

The president of the Partnership for New York City, Kathryn Wylde, said that Mr. Ross’s timetable was reasonable because the project enjoys widespread support among the government and civic groups.

“Aside from very few naysayers that are worried in the preservation community about MSG overshadowing the Post Office building, there is very broad based support for the plan going forward,” Ms. Wylde said.

Yesterday, Mr. Ross, of Related, rejected the idea that there would be a shortage of office space anytime soon in Manhattan. He said that there would be about 10 million square feet of new office space developed around Penn Station, more than is currently planned for the former World Trade Center site.

Vornado has bought up much of the real estate around the Garden over the past 10 years. The company’s chairman, Steven Roth, has said the plan would generate “$1.2 billion in value creation,” from the higher rents Vornado would command on nearly 7 million square feet of property in the near vicinity