Scottish Secretary, John Reid

The last Scottish town to receive the distinction was Dundee in 1889.

Announcing the award, Scottish Secretary Dr John Reid said: "Inverness has long been known as the Highland capital.

"I hope that its new status as a city will provide a welcome boost to the economy, identity and confidence of Scotland's newest city."

The news delighted Inverness Provost Bill Smith who said: "To be granted city status from the Queen at the millennium is a magnificent honour for Inverness.

"It will give businesses in the town and indeed throughout the Highlands a tremendous marketing tool in attracting additional income to our fast-growing economy."

'Inward investors'

Bill Sylvester, chief executive of Inverness and Nairn Enterprise, said the award would boost business.

He said: "The town of Inverness has already been successful in attracting inward investors to the Highland capital but city status will undoubtedly make the area an even more attractive place to do business."

Fergus Ewing: "Attractive place to do business"

Fergus Ewing, the Scottish National Party's MSP for Inverness East, Nairn and Lochaber, said city status would "promote Inverness as a commercial centre as well as an international tourist attraction".

Applications for city status closed in September last year and a decision was expected months ago.

But there have been a number of hitches and delays, among them a leaked memo from the Home Office which appeared to mock some of the 39 applications.

In England, 27 towns were in the running including Blackpool, Guildford, Ipswich, Milton Keynes, Northampton, Reading and Swindon.

Sounding board

Ballymena and Lisburn were Northern Ireland's candidates for the honour while six towns from Wales entered the race including Aberystwyth, Newport and Wrexham.

Only 14 city statuses were conferred during the 20th century, the most recent including Armagh in 1994 and Sunderland in 1992.

City status is granted by personal Command of the Queen

City status is a rare mark of distinction granted by personal Command of the Queen and conferred by Letters Patent.

It is expected an official ceremony will take place early in the new year to mark Inverness's new status.

The announcement coincided with First Minister Henry McLeish's announcement of a review of Scotland's cities.

He said a "sounding board" of experts would be set up next year to examine how government policy should be adapted to suit the country's changing cities.