The route of the planned extension through Birmingham
Plans to extend the Midland Metro from its terminus at Birmingham's Snow Hill station to New Street station are set to get the go-ahead.
Part of the £127.1m funding to build the new line and a buy a new fleet of trams will come from the government.
The current line joins Birmingham and Wolverhampton along a 20.13km (12.51-mile) route with 23 stops.
The extension - which is under a mile long and will run through the city's shopping district - could open by 2014.
The Midland Metro trams will exit Snow Hill Station and travel through the city before terminating outside a rebuilt New Street Station.
ANALYSIS: Metro Money
Midlands Today Transport Correspondent, Peter Plisner
We were promised a whole network of tramlines covering a large part of the West Midlands conurbation, but until now, only one line has been delivered, running from Wolverhampton to Birmingham.
It was easy to build because it runs along a disused railway line for much of its route.
The problem is modern tram systems are not cheap and the line through Birmingham will cost more than £50m.
Although expansion plans here have finally received government backing, an election is due soon which adds an element of uncertainty to the project.
After such a long a wait for the funding to be approved, those in favour of bringing the trams back to Birmingham are keeping their fingers firmly crossed.
They will follow a route from Snow Hill, along a viaduct already built, down Upper Bull Street and Corporation Street and on to Stephenson Street stopping outside a new entrance at New Street Station - a distance of 1.4km (0.8 miles).
Geoff Inskip, Chief Executive of Centro, said the announcement showed the government's support for the project.
"We're very keen to start work so we can bring the massive benefits of Midland Metro tram system through the city to residents and visitors to the West Midlands - transforming public transport in Birmingham and helping to create an even more attractive, modern and vibrant environment in the city centre," he said.
The Midland Metro celebrated its 10th anniversary in 2009.
When it opened on 31 May 1999, it was the first tramway to run partly on streets in the West Midlands for more than 40 years.
The metro, which runs mainly along the old Great Western Railway route, is operated by Travel Metro which part of the UK Bus Division of the National Express Group.