The theatre was temporarily closed last August for a refit

The money is conditional on the council approving its refurbishment plans.

In a separate process, the theatre won �578,000 towards its development, part of �11m given to arts organisations across Bristol over three years.

The theatre, which temporarily closed last summer for the refit, has been struggling financially, with upgrade costs rising from �7m to �9m.

A fund-raising campaign was launched to make up the shortfall, which will now be led by Dick Penny who agreed on Friday to take over as chairman of the theatre.

ARTS COUNCIL FUNDING TO 2011 Arnolfini: �3m Watershed: �1m Kompany Malakhi: �500,000 Spike Island: �450,000 Circomedia: �334,000 St Pauls Carnival: �140,000

Nick Capaldi, the council's south west executive director, said: "Bristol Old Vic has responded to our initial concerns with an energetic and practical explanation of how it intends to regain its former pre-eminence as one the country's most important producing companies.

"We have also been impressed by the overwhelming support given to Dick Penny by theatre practitioners, funding stakeholders and members of the public."

Councillor Rosalie Walker, added: "This is excellent news and I'm delighted with the Arts Council's funding decision.

"This is the first step in getting the Old Vic back on track. This is very much a people's theatre and everyone involved, including myself, is passionate about its future and its massive contribution to the cultural life of the city."

Kuumba Project

But Mr Capaldi confirmed that funding would not be renewed for the Kuumba Project, a Bristol-based black artists' project.

Last year it received more than �100,000.

Kuumba's managing director Ron Morrison said he was devastated by the news and added that the centre now faced a real threat to its future.