A 65-year wait for a bypass is over after approval was given by the Government.
Work on a £9m Chilton bypass, which was first suggested in 1939, will start in May.
Transport secretary Alastair Darling made the announcement during his first North-East visit on Monday.
A new single carriageway bypass will be built west of the village.
Mr Darling said: "People in County Durham will soon benefit from this scheme that will route traffic away from Chilton, improving safety, quality of life for residents and make journeys on this busy route more reliable."
An estimated 18,000 vehicles a day use the A167 through Chilton.
The new 2.2km stretch of road, from south of West Close to the Rushyford roundabout, is expected to be completed in July 2005.
Margaret Taylor of the Chilton West Residents' Association said: "We couldn't go on with this amount of traffic going through the village - no village could sustain it, especially one our size.
"Now that the bypass is going ahead and finalised, the residents' association is very happy about it."
A public meeting has been arranged at Chilton and Windlestone Workingmen's Club next Tuesday, from 2pm until 4pm and from 7pm until 9pm.
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