Bath's Western Riverside development has been given a £6m boost by the Homes and Community Agency (HCA).
The 44-acre scheme has already gained £2m of investment from the agency for infrastructure work around the site.
The latest money will help to fund 100 new affordable homes on the 44-acre site as well as 100 other homes which will be sold privately.
About 3,500 homes could eventually be built at the site as well as business, leisure and retail facilities.
David Warburton from the HCA, a government-sponsored national housing and regeneration agency, said: "Bath Riverside has rightly been identified by partners as a top priority for HCA investment and support.
"The housing is an important element, as property values and restrictions on borrowing mean that demand for affordable homes is increasing in cities like Bath."
Bath and North East Somerset Council is also investing £2.7m in the new homes.
Mike Grist, from Somer Housing Group, which would manage the affordable housing, said the new homes were much needed.
"Bath Western Riverside represents a rare opportunity to provide a significant number of new, affordable apartments and houses in central Bath."
In 2009, inspectors from Unesco decided plans for the Western Riverside development did not harm Bath's historic centre.
The report from the UN's cultural body gave the development a clean bill of health and said it would not affect Bath's status as a World Heritage site.