Transport for Greater Manchester has secured a £10.8m grant from the European Regional Development Fund towards the development of the second city crossing, with the connection between Manchester Victoria and Exchange Square due to be operational by summer 2015.
The ERDF funding will also go towards works at the Deansgate-Castlefield stop, with a lift, steps, and a revamped pedestrian bridge assisting public access. There will also be new inbound and outbound platforms.
The second city crossing will see a new route through St Peter's Square, along Princess Street, Cross Street and Corporation Street, re-joining the existing Metrolink line near Victoria station. Victoria station has been undergoing major refurbishment works which started this February.
That connection between Manchester Victoria and Exchange Square is due to be built by next summer, with the completion for the entire second city crossing due in 2017.
The Deansgate-Castlefield project will be finished by summer 2015, after which work on the St Peter's Square stop will get under way.
The announcement comes shortly after news that the construction of a Metrolink line to Manchester Airport is running a year ahead of schedule and is due to open by the end of the year.
Cllr Andrew Fender, chairman of the TfGM Committee, said: "This is fantastic news that has far reaching benefits. It means the early arrival of trams to Exchange Square, it means more trams for people travelling between Oldham and Manchester and it means the transformation of the Deansgate-Castlefield stop.
"Most importantly of all, it means that we can start to realise some of the many benefits of Metrolink's transformational second city crossing a lot sooner."