The new ferry will enter service in 2007
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A ferry service, which has been in existence for more than 600 years, is set to continue on Tyneside.
There has been a ferry carrying people across the river Tyne from South Shields to North Shields since 1377.
But one of the two current ferries is almost 30 years old and transport bosses are recommending spending almost £2m on a replacement.
The new, state-of-the-art vessel, is due to be built in Portsmouth and ready for service in 2007.
The ferry will be funded by the Tyne and Wear Passenger Transport Authority (PTA), with help from regional development agency One NorthEast.
David Wood, chairman of the PTA, said: "Providing a Shields Ferry that enables people to access jobs, health services and education in North Tyneside and South Tyneside is an absolute must."
Mike Parker, director general of Nexus, which operates the service, said: "The priority, with growing congestion on both sides of the river, is to provide a viable alternative to the private car."
The ferry service undertakes around 500,000 passenger journeys a year.