there was a 3d game called redfaction that used a so called "geo mod engine" there you could build tunnels like in liero have a look here:

http://youtube.com/watch?v=yHLRlb16w0g

to get the idea. here is some information on how it works directly from the geomod programmer:

http://john.slagel.com/Geomods.html

hope this helps you.