Arnolfini will take over Bush House

In 2003 a design team will begin work to convert the three lower floors.

The Arts Council, which has awarded the money, said it will become "a fully accessible centre for contemporary culture, with beautiful galleries, flexible auditorium and vastly increased community and education spaces".

The transformation will be led by the architect Robin Snell and the artist Susanna Heron.

Rent from the three upper floors will continue to help to support Arnolfini's education, community and arts programmes.

The aim is to develop Arnolfini as a national focus for innovative art.

Culture capital

The grant has been announced exactly a year after Sir Paul McCartney's exhibition of 500 paintings opened at Arnolfini.

Jonathan Harvey, the centre's chairman, said the grant was "wonderful news" as Bristol prepared a bid to be named European Capital of Culture in 2008.

The project has been championed by Sir Nicholas Serota, director of Tate.

Bristol docks are a cultural playground

He said: "Since 1961 Arnolfini has built an international reputation as a centre for the arts founded on visual awareness.

"This scheme will give Arnolfini a permanent home and facilities which ensure the continuing excellence of its programme."

The project is costing �12 million overall.

Of that, �2m has been promised by the Barker-Mill trust, set up by Peter and Caroline Barker-Mill, who supported Arnolfini from its early days.

The remaining �2.5m is to be raised from various sources by 2003.

The new work will continue the transformation of the cultural heart of the city - with the docks area already including arts, science and natural history attractions.