Plans to put a railway town firmly on the national tourist map could move a step closer to reality next week.

Two key grants will move Shildon, County Durham, almost £600,000 closer to opening a new £7m branch of the National Railway Museum in two years.

A £350,000 Government grant was announced last week, while a £219,000 application to the Shildon Single Regeneration Budget (SRB) programme should be approved when it is considered in a few days' time.

The latest funding comes from the Department for Culture, Media and Sport's Museums Capital Challenge Fund.

The project already has agreement in principle for a £4.75m contribution from the Heritage Lottery Fund and this should be confirmed next month. This will open the way for bids for more funding from regional development agency One NorthEast and the European Regional Development Fund.

More than 40,000 visitors annually are expected to be drawn to the museum, bringing spin-off benefits for the tourist trade in the region.

It would be built on an overgrown former marshalling yard and would link with the existing Timothy Hackworth Museum on a 15-acre site.

About 70 engines and carriages, ranging from coal trucks to five royal carriages and an example of a 1960s tilting train, would be housed in a huge glass building. Visitors could arrive by special train from Darlington, travelling along part of the historic Stockton and Darlington line.

Phil Ball, head of leisure services at Sedgefield Borough Council, said yesterday: "This is exciting news because it means that things could develop fast.

"The two grants would provide us with the impetus to seek further funding from other sources. It is all starting to come together now, and we are still looking as having the project completed towards the end of 2003."

Innovative "green" ideas could help to make the museum even more attractive to visitors. Specialists in sustainability and waste management were flown to the North-East last week by the National Museum for Science and Industry to lead a session with the team driving the project.

Mr Ball said: "We are reviewing the sustainability issues which, although they would cost more, would bring an exciting new dimension to the museum building and the whole site."

l The Northern Echo launched its Treasuring Our Railway Heritage Campaign in 2000 to mark the 175th anniversary of the Stockton and Darlington Railway, the world's first passenger railway service. It aims to ensure that the railway is properly remembered and the region's rich rail heritage is preserved and exploited commercially.