Yisrael Katz said he wanted to honour the US president for his decision to recognise the city as Israel's capital, BBC reported on Wednesday.
The Western Wall is the holiest site where Jews are permitted to pray.
The proposed new railway tunnel and station would form part of an extension of a high-speed line from Tel Aviv that is set to open next year.
Previous Israeli excavation work around the compound behind the Western Wall, known to Muslims as Haram al-Sharif (Noble Sanctuary) and to Jews as Temple Mount, has triggered Palestinian protests.
The UN cultural agency Unesco, which has designated the Old City a World Heritage site, has also expressed concern about tunnelling and excavations.
Katz told the Israeli newspaper Yedioth Ahronoth that the extension of the Tel Aviv-Jerusalem line was the transport ministry's "most important national project".
He said he had approved a recommendation by an Israel Railways committee to build a 3 km underground tunnel from Binyanei HaUma station in West Jerusalem to the Western Wall, which is in occupied East Jerusalem.
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