The cost of the extension has been estimated at �75m

Transport Minister Dr Stephen Ladyman has approved the �75m plan, which would see Midland Metro trams linking Snow Hill, New Street and Five Ways.

It is one of two new lines Centro hopes to build in the West Midlands.

However, the council is still awaiting the results of a feasibility study into an underground rail route for the city.

'Welcome reward'

Peter Plisner, the BBC's transport correspondent in the West Midlands, said Centro would probably not be able to start work on the 3.2km tram extension until the council had considered that report.

The politician responsible for transport in Birmingham, Councillor Len Gregory, has previously supported the creation of an underground rail network in the city.

Rob Donald, director general of public transport body Centro, welcomed the government's approval for the tram extension.

"This positive decision is a welcome reward for many years hard work by our staff, Birmingham City Council colleagues and specialist consultants.

"Centro now hopes the city council will reaffirm its support for this Metro extension, enabling us to introduce it along with the Wednesbury to Brierley Hill line approved last year."

The latest tram line would operate from the existing Midland Metro line terminus at Snow Hill and run between New Street Station, the ICC, Brindley Place and Five Ways.

Centro said the line would have 10 stops and allow people to journey from Snow Hill to Hagley Road in 13 minutes.