There had been concerns the Victoria Dock Arts Centre in Caernarfon scheme was in doubt because of a shortfall of around £500,000.

It will help Caernarfon build on its World Heritage Status and develop its cultural profile

Welsh Assembly Minister Andrew Davies

Welsh Assembly Economic Development Minister Andrew Davies gave the green light for the grant on Tuesday.

"I am delighted to approve this grant for this new flagship arts centre, which I feel certain will play a key role in boosting the regeneration of the area," said the minister.

The Wales Tourist Board (WTB) is required to obtain approval from the Welsh Assembly Government for grants to private sector projects in which public sector funding accounts for more than 50% of the budget.

The issue had been complicated by what the local AM Dafydd Wigley has described as a "misunderstanding" over European rules, although this has now been clarified.

Andrew Davies thinks the centre will regenerate the area

A "furious" Mr Wigley had raised concerns over whether the European Union would classify lottery money as public money - this would have stopped the tourist board from contributing to the project.

However, because the WTB was not a profit-making project, the AM said he had been told the question did not arise.

Announcing the approval of the grant, Andrew Davies said that the centre would aid tourism for the region.

"It will help Caernarfon build on its World Heritage Status and develop its cultural profile, providing an attraction for tourists from Wales and beyond," he said.

The development at Caernarfon's Victoria Docks is set to host a theatre and cinema, cafes and places for artists to practise and is seen as crucial to the town's regeneration.