Brian Wilson made the announcement in Islay

Wavegen, the Inverness-based company behind the machine, has already developed a grid-connected shoreline wave energy generator on Islay.

The firm now plans to use the power of the Atlantic Ocean to generate more power with a prototype of its offshore machine.

Mr Wilson announced the cash-aid for the project in Islay, after inspecting the shoreline facility which has proved successful.

He said: "Wavepower has a huge part to play in our drive for renewable energy and Wavegen is at the frontline of the technology.

"Our oceans are a major potential energy source and can lead to a new industry for the UK in which I am determined that we should be world leaders.

"The market place is now ripe for industry to invest in these exciting technologies and I commit the government to doing all we can to encourage this process."

Welcomed by environmentalists

The government hopes to see 10% of the UK's electricity generated from renewable sources by 2010.

Kevin Dunion, the head of Friends of the Earth Scotland, welcomed the announcement.

He said: "This is a tremendous vote of confidence for renewable energy in Scotland as well as an important jobs boost.

"It is exactly the type of scheme the government must continue to support instead of entertaining thoughts of a return to polluting and highly expensive nuclear power.

"If the Government could wake up the full potential of renewables, during its current energy review, then Scotland will not have yet another nuclear power station foisted upon it."