A £1bn scheme to extend the Northern Line to Battersea in south London has won approval from the transport department, ending years of uncertainty over the future of the project.

Under the plans there will be two new stations, one at Battersea Power Station and another at Nine Elms to the east.

The scheme is seen as crucial because it will connect the 450-acre regeneration site around the power station with the West End in just 15 minutes.

The line is also crucial to serve the new US embassy complex which is due to open at Nine Elms in 2017.

Ministers had refused to give the project central funding, instead promising in 2012 to give it a state guarantee to help get it off the ground.

On Wednesday Patrick McLoughlin, transport secretary, finally gave the go-ahead and said its funding had been secured entirely through contributions from developers whose property schemes will benefit from the new line.

The funding package will also include the creation of an enterprise zone in the area from 2016.

Boris Johnson, mayor of London, said the project would be vital for the developers creating 18,000 new homes in the area. “Early next year the spades will be hitting the ground,” he said.

Transport for London said stations could be opened at Nine Elms and Battersea by 2020.

The decision to approve the scheme came after a public inquiry into the project was completed in December last year.

David Leam, director of infrastructure at LondonFirst, the business group, called the decision a “fantastic early Christmas present” for the city.

“Not only does the Northern Line extension unlock the transformation of Battersea and Vauxhall, it also gives London a model for funding new infrastructure with a reduced reliance on central government grant,” he said.

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