The canal system in mid Wales will be joined to the UK network

Craftsmen have already restored an old stable block at the site at Llanymynech, near Welshpool.

The new phase will see 500 metres of waterway improved that will provide better access.

The stable is being used as a community centre and an information point for visitors.

Work restoring the entire canal, which is 35 miles long, started a few years ago and is costing more than �40m. Plans are to link it to the UK network, although this could take a decade to complete.

Supporters have said that the restoration of the transport network would have a huge benefit on the area, attracting more tourists and providing the local economy with a welcome boost.

The Montgomery Canal is a unique stretch of waterway that boasts a staggering range of natural, historical and visual features Peter Birch, British Waterways

Environment and heritage manager for British Waterways Wales and Border Counties, Peter Birch, said the project was a vital component in the carefully constructed restoration jigsaw of the canal.

"The Montgomery Canal is a unique stretch of waterway that boasts a staggering range of natural, historical and visual features," said Mr Birch.

"The Montgomery Canal Partnership is committed to ensure its restoration takes all these aspects into account.

"As well as being a further piece in the overall jigsaw of restoration, this work builds closer links with the local community and enables better use of the existing facilities the canal has to offer."

When lit is inked up the canal will stretch 35 miles

The new work, to start this winter, will focus on the original stone wharf walls and construction of a new winding hole which will allow canal boats to turn round.

Repairs to minor leaks on the canal side will mean that the water level will rise by 30cms.

The main work on Llanymynech Wharf, where the canal crosses the River Vyrnwy on Powys' border with Shropshire, is due for completion in 2006.

The canal runs south from the Llangollen Canal at Frankton Junction through Shropshire and Powys to Newtown.

British Waterways is responsible for the care and maintenance of the UK's 2,000-mile, 200-year-old network of canals and navigable rivers.