The plans were scrapped in July due to rising costs

The tram network already serves areas between the city centre and Bury, Altrincham and Eccles.

But plans for three new routes to Ashton, south Manchester and Manchester Airport, and Oldham and Rochdale were scrapped due to rising costs in July.

Transport Minister Tony McNulty said plans to shave �300m off the original �1bn bill were now being considered.

But he said tough negotiations lay ahead over the cash.

I'm delighted with what the minister's had to say but there's a fair way to go yet Roger Jones, Greater Manchester Passenger Transport Executive

He told the BBC Politics Show in the North West: "We are having very serious discussions with Manchester and I would say that they have been extremely fruitful and productive.

"We want to find a way out of the position we're in now.

"The future of light rail isn't completely dead in Manchester or elsewhere but there are serious questions we need to look at in terms of the various aspects of funding."

Greater Manchester Passenger Transport Executive (GMPTE) chairman, Roger Jones, said: "I'm delighted with what the minister's had to say but there's a fair way to go yet.

"What we need is his support to convince the Treasury that we can refund and repackage Metrolink.

"It's not just reducing costs, it's changing the whole package so that the public sector and private sector share the cost of the scheme."

Sharing costs

The breakthrough follows a large campaign by politicians and the public for the government to reconsider its decision.

A petition of about 41,500 signatures from people who wanted to see phase three of the Metrolink completed was collected.

The cuts are thought to be achievable by sharing the cost between the public sector and business.

Under the previous plan, the private sector would take the risk if passenger targets were not met.

The GMPTE is now believed to be prepared to share that risk, reducing the overall cost by �200m.

Homes demolished

Leasing the rolling stock, rather than buying it, would also save up to �70m.

Manchester Airport might also be asked to share in the cost of the line from Wythenshawe to the airport, the BBC's North West Political Editor, Jim Hancock, said.

Transport Secretary Alistair Darling had rejected the scheme in July, despite �200m having already been spent on the project.

Homes, schools and offices had already been demolished to make way for the route expansion while a tram stop has also been built at the airport in preparation.

Manchester City Council criticised the government's decision at the time saying it was "appalling" and a "major blow".