Boreholes up to two miles (3.2km) deep will be drilled in Manchester to use a thermal spring to heat homes.
Proposals by GT Energy for the exploratory drilling in the Ardwick area have been approved by the council.
If the two boreholes are successful, further plans will be submitted to create a network of underground pipes taking heat to houses.
GT Energy says it will reduce energy costs for 6,000 homes and businesses.
The initial boreholes will be installed at the junction of Devonshire Street and Coverdale Crescent.
Project 'one of largest'
If the plan goes ahead, they will be used to extract geothermal water, which would be passed through an underground energy centre at a rate of 50 litres per second.
It would then heat properties in the Ardwick and Oxford Road Corridor areas via underground pipes.
Energy Minister Greg Barker has previously said it would be one of the largest geothermal projects in the country.
Drilling rigs are 40m (130ft) high and the plant will take 12 months to build. The water temperature underground, in the ancient Cheshire Basin reservoir, is about 100C (212F).
One geothermal plant is already in operation in Southampton, and another is in development in Newcastle.
There are 210 similar projects in operation across Europe, with 4,000 more in the planning.