The Scottish Land Fund has announced an award of up to £4.4m to a community bid to buy the island of Ulva and land on the neighbouring Isle of Mull.
Only six people, including the landowner, live on Ulva but residents of north-west Mull are also involved in the planned purchase.
North West Mull Community Woodland Company now has until 9 June to agree terms with the Ulva estate's owner.
They also have until that date to raise remaining funds needed for the bid.
The group plans to purchase the estate, which spans 4,942 acres (2,000 ha) and includes Ulva, as well as some land on Mull.
Following consultation with local people, the number one priority for community ownership is to attract new residents by increasing economic activity and housing stock.
Colin Morrison, chairman of North West Mull Community Woodland Company, said: "This award from the Scottish Land Fund is hugely significant, not only for Ulva but also more broadly for north west Mull.
"We aim to have 20 or more people living on Ulva within two or three years, rising to as many as 50 or more in time as new houses are built.
"Social and economic development of Ulva will bring benefits to the neighbouring communities on Mull.
"Schools, shops, local services and industry will all receive a boost from the increased population and also from the increased number of visitors we are confident we shall see once accommodation and facilities are provided for them on the island."
Land Reform Secretary Roseanna Cunningham welcomed the funding announcement.
She said: "If the purchase is successful, then I'm sure that the people of Ulva, and its surrounding area, will reap the benefits of community ownership for years to come."
Scottish Land Fund chairman John Watt said: "It's with great pleasure that the Scottish Land Fund awards this funding to the North West Mull Community Woodland Company.
"This means that local people are now one step closer to extending the area the community currently owns, and in doing so putting the future of the island of Ulva firmly in local hands.
"It is a momentous day for all those involved and I wish them every success as they go on to raise the remaining funding that will allow them to turn their dreams into reality."
In December 2017, following an independent ballot of 401 voters in north west Mull, almost 64% of people were in favour of the community buyout.