BBC News' Linda Duffin reports

The �50m project will implement Sir Norman Foster's World Squares For All masterplan.

It has the backing of London Transport and English Heritage but many local residents fear the changes could mean increased traffic congestion.

Mr Prescott said there is "overwhelming public support turning these historic squares from being giant traffic islands into places where people can relax and enjoy the sights at the heart of our capital."

Plans will have little effect on traffic

Research suggests banning cars from the north side of Trafalgar, reducing Whitehall to two lanes and replacing Horse Guards Road with a cycle lane would only increase congestion by 3%, with an extra 30 seconds added to journey times - although bus journeys might actually be quicker.

Mr Prescott added: "Seventy-five thousand people walk through the areas around Trafalgar and Parliament Square every day and most of them are Londoners.

"Sir Norman's masterplan is in line with the new approach to city living that my urban renaissance initiative seeks to promote. It will alter the balance between pedestrians and traffic in favour of people."

Reservations overcome

Mr Prescott said Westminster City Council, who had reservations about the plan, has agreed to take the scheme to the design stage and have applied to the government for the necessary funds.

Money for the scheme will also come from the Heritage Lottery Fund.

Westminster council dropped their objections to the proposals after the publication of the government's White Paper on transport, which aims to reduce traffic congestion in the capital.

The government also hopes freeing the squares of traffic may have some health benefits for Londoners.

Reducing traffic could start the long process of reducing the number of asthma sufferers in London, a disease caused in part by traffic fumes.

'A breakthrough'

The Transport White Paper also calls for more use of public transport, cycling and walking in the battle to clean up the environment and cut levels of carbon dioxide in the atmosphere.

A spokesman for the London Chamber of Commerce, said: "This is nothing less than a breakthrough.

"We had real concerns about the scale of the original plans and their likely impact on congestion.

"But today's announcement means we can achieve some of the benefits that the original plans promised without the same risk of widespread disruption."

He added: "We may even be able to extend pedestrianisation still further."

But a spokesman for the Road Haulage Association said: "This is a proposal we would welcome, provided there is some scope for commercial deliveries and for public transport.