The second phase of the £32bn HS2 high-speed rail network will cut journey times between York and London by about 30 minutes.
The preferred route of phase two will take high-speed trains to the Church Fenton area, where they can connect with existing lines and run into York.
Journey times from York to London would be cut to 83 minutes.
York council welcomed the announcement but Church Fenton villagers said they were concerned it would ruin the area.
'Not going to happen'
Councillor James Alexander, leader of the Labour-run City of York Council, said the project was key to securing the city's economic future.
He said: "This commitment to the next phase of the HS2 programme means that York is set to realise real economic benefits upon its completion.
"With access to the country's capital in just 83 minutes, York will become an even greater hub for tourism and business.
"We now need to work to capitalise on today's announcement, which provides a further boost in confidence to York as a city to invest."
But Andrew Mason, from Church Fenton Parish Council, said he thought the project would "blight the village".
He said: "If you look at the route, where it's going, we're a lovely village at the moment, we have got a rural background and this will completely decimate it and create an urban island.
"I am sure when we have consulted with the village everybody will take the view that it's just not going to happen."
The preferred route of phase two, running northwards from Birmingham, will have five stops at Manchester, Manchester Airport, Toton in the East Midlands, Sheffield and Leeds.
Chancellor George Osborne said it was "the engine for growth in the north and the midlands of this country".
A final route for phase two is expected to be chosen by the end of 2014.
Construction on the Y-shaped extension could start in the middle of the next decade, with the line open by 2032-33.