A ferry operator has been awarded a six-year contract to take over services to Orkney and Shetland.
The contract is to run the services to Orkney and Shetland
Northlink Ferries Ltd, which replaces previous operator NorthLink Orkney and Shetland Ferries Ltd, will receive £31m in subsidies in its first year.
The new contract provides for freight and livestock to be included for the first time.
Transport Minister Tavish Scott said the deal would secure vital lifeline ferry services for the long-term.
About £78m of public money has been spent keeping ferry services to the Northern Isles afloat, more than double the originally agreed subsidy.
The tender process began in April 2004 and bids were submitted by V-Ships UK Ltd and Caledonian MacBrayne which runs ferry services on the west coast.
NorthLink Ferries Ltd has been formed to deliver the services following the appointment of Cal Mac as preferred bidder in March.
The contract also includes a midweek freight call-in at Orkney, new livestock transporters from 2007 and an improved performance regime.
Mr Scott said: "These ferry links are crucial to the prosperity and well-being of the Shetland and Orkney communities they serve.
"I am confident that this contract offers the best value for public money and will deliver real improvements for anyone using the service."
Reducing freight rates for island businesses will benefit the economies of Shetland and Orkney, the minister added.
"Local crofters and farmers will welcome the new livestock container arrangements," he said.
The new company is wholly owned by ministers, through parent firm David MacBrayne Ltd.