The orbital service will play a key role in London 2012
An orbital rail network for London has come a step closer after a £75m rail project was given the green light by ministers.
Approval for the extension of the East London Line from Surrey Quays to Clapham Junction was announced by Transport Secretary Geoff Hoon.
It constitutes phase two of the expansion of the East London Line as part of a £1bn project.
The expansion is expected to be completed in time for the 2012 Games.
Once completed, the new line will connect Highbury in the north to West Croydon and Clapham Junction in the south.
Mr Hoon said: "The East London Line extension will deliver a key rail link south of the river and improve local transport for Londoners by providing more choice and better access to other parts of the capital."
London's mayor Boris Johnson said it was "tremendous news".
"We can finally get cracking on a vital section of track that will orbitise our Overground rail services," he said.
"I promised Londoners that where funds were made available we would build the improvements they need."
The phase two extension will connect commuters in Peckham and Denmark Hill, south-east London through to Clapham Junction.
Phase one of the project has already seen work begin on extending the line run from Dalston Junction in north London to West Croydon in south London and is due to open next year.