The government is backing the upgrading of Manchester's tram system.
More trams are planned to cut rush-hours delays
Transport minister Derek Twigg said the government will pay £58m towards the total cost of £102m for Metrolink work.
But the approval is conditional on Greater Manchester Passenger Transport Executive keeping to the agreed budget. Private firms will bid for the work.
The money will be used to replace some sections of track, improve stations and ticket machines and buy eight more trams for the network.
Welcoming the decision, councillor Richard Leese, leader of Manchester City Council, said: "This is great news and shows that the government is listening to the masses of people still campaigning to get our Metrolink back on track.
"This work is much needed and will improve travel for everyone around the city and the conurbation.
"Now we intend to press on to ensure that Metrolink Big Bang is built and to achieve this, we look forward to further positive dialogue with ministers."