A chaotic two-day shutdown of Sydney's train network has been averted at the eleventh hour after the state government caved to rail union demands to run 24-hour services to prevent workers striking.

Sydney train services had been set to stop running early on Friday morning, as part of a Rail, Tram and Bus Union (RTBU) work ban which was set to lift on Sunday morning.

However, last-ditch talks between the New South Wales premier, Chris Minns, the transport minister, Jo Haylen, and the RTBU secretary Toby Warnes led to an agreement that will see the union call off the strike that was set to affect all train services in the Sydney city network over a busy two-day period.

Guardian Australia understands the government has agreed to run 24-hour services over the two-day period, caving to a union demand that had become a bargaining chip as it sought to force action on the wider improved pay and conditions it was seeking from the government.

While light rail and metro services would not have been affected as their workers were not part of the pay dispute at the centre of the strike, separate unrelated maintenance for the metro line between Chatswood and Sydenham via the CBD on Saturday and Sunday would have shuttered the line as an alternative option.

The rail unions have taken hundreds of industrial actions since September as they negotiate with the government over pay and conditions for about 14,000 train workers.

The RTBU has demanded a 32% pay rise over four years, or 8% a year, while the government has offered a three-year agreement totalling 9.5% plus super.

The union threatened to stop all work on the train lines unless the government runs trains overnight. Sydney trains typically stop running services between about midnight and 4am.

Both sides have acknowledged the call for round-the-clock services is a bargaining chip in the wider pay dispute.

Haylen had refused to run round-the-clock trains while the RTBU had demanded the government improve its bargaining offer.