The Outline Business Case (OBC) for extending Edinburgh’s trams to Newhaven via Leith Walk has been approved by the City of Edinburgh Council.
The OBC has been scrutinised by members of all political groups on the council in recent weeks and gained approval from the Transport and Environment Committee earlier this month.
A comprehensive tendering process will now get under way to secure a potential contractor partner for the project.
However, councillors will not make a final decision on taking the tram to Newhaven until autumn 2018.
The council said the Edinburgh area is expected to experience a faster growing population than anywhere else in Scotland.
It said National Records of Scotland projections published in 2016 suggest Edinburgh should be planning for an additional 47,000 people by 2024 and additional 102,000 by 2039 — a 20% increase.
The council estimates the capital cost of the extension will be £165.2 million and that construction work will take three years.
Council leader Adam McVey said: “Given the rate of growth forecast for Edinburgh over the coming years, we simply cannot stand still.
“And yet we can’t proceed with work to take trams down to Newhaven unless we’re 100% certain we’ve rigorously scrutinised the business case and taken on board crucial lessons from the first phase.
“Having pored over the Outline Business Case in microscopic detail these past few weeks, including obtaining independent advice on it, I’m confident our project team — which retains key personnel from the team who got the first phase back on track — is now well placed to move on to the next stage and start the procurement process for a contractor.
“We will only make our final decision next autumn once the tendering process has completed and once we’ve consulted an independent assessor on the viability of the proposed construction contracts.
“We’ll also of course consider any lessons learned from Lord Hardie’s ongoing tram inquiry as we move forward.”
Transport convener Lesley Macinnes said: “For the people of Leith, having a direct tram link to the city centre and other key employment and travel hubs would be hugely beneficial.
“That said, we are acutely aware of how challenging the construction period would be, which is why we’re developing a compensation scheme to help those who would be most affected.
“We’ll take the time while the tender process is ongoing to build and maintain useful two-way relationships with local residents and businesses so we can understand and ideally pre-empt issues which might arise.
“Stage 2 will also enable us to work with all our partners and stakeholders, including bus companies, the emergency services, residents, businesses and elected members, to properly test and model traffic management plans for the works.
“Over the next 12 months we will be able to develop an even fuller picture of the project, building further detail into the business case and drawing on another year of patronage, which will allow us to make a fully informed final decision next autumn.”