The �5m grant means full steam ahead for the restoration work

The funding will enable the Ffestiniog Railway company to complete the line's final 13-mile section to Porthmadog.

The scenic route of the narrow gauge line is expected to open in 2009.

But campaigners against extending the rail line have expressed disappointment at the decision to award the funding.

The volunteer-run railway line, which runs steam locomotives, carries around 50,000 visitors annually and celebrates its 40th anniversary this year.

The cost of restoring the old track is estimated at �10.75m. The project already has a �3.7m European regional development grant and a �1.3m assembly transport grant.

We look forward to the day when people can ride by train from Caernarfon to Porthmadog through the Snowdonia National Park Michael Whitehouse, Ffestiniog Railway chairman

The remaining balance has been met by the assembly government, through the Welsh Development Agency, and donations from the private sector.

Assembly Deputy Minister for Economic Development and Transport Brian Gibbons, who announced the grants package, said the project - the fourth section of the restored rail line first launched in 1923 - would be a vital link in northern Snowdonia's public transport network.

He said: "The Welsh Highland Railway is already a major attraction for visitors to the area

Assembly minister Brian Gibbons hands over the money

"This funding will result in a major improvement in the region's transport infrastructure, and create one of Europe's foremost tourist attractions."

'Sustainable tourism'

Richard Williams, who chairs the campaign not to re-open the railway said: "I'm disappointed to think about the local circumstance.

"They've put the local hospital in Porthmadog to one side.

Hopefully they will be as generous for other projects in the area such as the building on the Snowdon summit or the local hospital Councillor June Jones

"The priorities of the assembly are total wrong. The traffic problems in Porthmadog over the summer needs addressing and if this project goes ahead it will increase the traffic there."

Councillor June Jones said it was a very big sum of money to be given to one project in an area that needed investment.

"It would be nice if they listened to our opinions.

"Yes, the go-ahead has already been given for the railway but hopefully they will be as generous for other projects in the area such as the building on the Snowdon summit, which attracts over half-a-million people every year, or the local hospital."

The third section of the Railway, between Waunfawr and Rhyd Ddu, was opened last year after a visit by Prince Charles.

Ffestiniog Railway chairman Michael Whitehouse said the grants package was a major vote of confidence in the project.

He said it was also a boost to sustainable tourism and economic development in the area.

He added: "We look forward to the day when people can ride by train from Caernarfon to Porthmadog through the Snowdonia National Park."

Once reconstructed, the Welsh Highland Railway will run for 25 miles.

Works to complete the first 13 miles, between Caernarfon and Rhyd Ddu, at the foot of Snowdon, are nearing completion.