Findings from the report reveal the new canal would bring what have been described as 'enormous' social, economic and environmental benefits to the region including new wildlife habitats and leisure resources and would attract up to 1,250,000 visitors into the area, generating an extra £7.5m a year for the local economy.

The Route - A1 - runs from the Grand Union Canal at Campbell Park in Milton Keynes (close to Gulliver's Land), crosses the M1 between Junction 13 and 14, runs near to Brogborough Hill, through Marston Vale and connects with the River Great Ouse at Kempston.

Chris Mitchell, British Waterways' regional director, said the chosen route had emerged as the clear favourite, and runs into both town centres and offers the greatest opportunities for bringing the full benefits of waterside living, working and recreation to this area of the south east where there are plans for population growth.

The scheme and the chosen route is backed by a strong community partnership that includes British Waterways, Bedford & Milton Keynes Waterway Trust, local authorities, the East of England Development Agency, East of England Tourist Board, The Wildlife Trust for Beds, Cambs, Northants & Peterborough, Forest of Marston Vale, Environment Agency, Inland Waterways Association, Great Ouse Boating Association and The Waterways Trust.

The project faces a number of major engineering challenges, including scaling the 150ft Brogborough Hill and crossing the M1 motorway. The initial feasibility report into the project estimated the cost of constructing the chosen route at £150m.

Development studies underway since 2001 have already identified possible alternative engineering solutions and potential cost savings. The next steps for the project include further research and consultation to refine the line and construction costs of the route, a study into the impact of the construction of the canal on the environment and an analysis of water resources in the area.

This information, together with visitor management and public transport strategies, will be used to produce a design for the new canal.

Following a formal application to the Government via a Transport & Works Act Order, which allows the Secretary of State to grant navigation rights and planning permission, building could start in 2007 and the waterway would be complete in 2010.

British Waterways and its partners continue to investigate funding sources, including opportunities to incorporate the new canal into planned housing developments along the route and using the anticipated uplift in property values to fund sections of its construction.

Other sources could include landfill and aggregate tax credits, internal drainage grants, corporate sponsorship, the Lottery, funds raised from charitable trusts and the public.