The scheme to build a 74- mile rail link joining the eastern and western fringes of London has been described by ministers as the largest rail construction project in the northern hemisphere.

Announcing the project Prime Minister, Gordon Brown said: “This is a great day for London, for Crossrail and the British economy.”

Crossrail will carry 200 million passengers a year and increase Canary Wharf’s rail capacity by over 50%. London mayor, Ken Livingstone, said it will underpin the next 20 years of economic development in London.

“In the seven years since I have been mayor, delivering Crossrail has been by far the most important transport project I have sought to deliver, working together with London’s businesses and the government,” said Mr Livingstone.

“I regard today’s statement as a tremendous combined achievement of all those who have worked for it and one of the most important announcements London could have.”

The go ahead for the project was widely expected after London’s financial sector agreed to help with the funding. The City of London Corporation had agreed to contribute an estimated £300m, following similar voluntary contributions from BAA and Canary Wharf Group.

The government had warned that without financial support from the City, which it said would significantly benefit from Crossrail, the scheme could not be funded.

Crossrail was first proposed in a government study in 1989, but the idea was rejected by MPs in 1994.

It is expected to deliver economic benefits of about £30bn over 60 years. Construction is likely to take until 2017 at the earliest.

The route will run overland from Maidenhead in the west to Paddington before burrowing underground.