Proposals for the regeneration of Cirencester town centre, including the revamp of the Market Place, are "one step closer", the town council said.
Plans to turn it into a shared space for pedestrians and cars were approved by district councillors in December.
Now the Department for Communities and Local Government has backed the scheme and given the green light for up to £1.4m funding towards it.
Changes include a new community space and improved road layouts and parking.
Mayor of Cirencester, Liberal Democrat councillor Mark Harris, said: "I'm delighted we have this vote of confidence for regenerating the Market Place.
"At last we can begin to deliver the aspirations of many previous generations and councillors for the benefit of many future generations of Cirencester people and visitors to the town."
The town council said it had to demonstrate "sound financial management" of its resources and evidence of public support, in order to secure funding for the scheme.
Earlier estimates suggested the project could cost up to £1.5m.