The North West Development Agency has stepped in to save the first phase of Lowther Manelli's new stadium, retail and residential scheme, New Squares in Penrith, Cumbria.
The £1m grant will revive the project, which was halted in October when National Australia Bank withdrew its offer of funding to developer Lowther Manelli.
The public funding will enable the first phase of the project, the construction of a new stadium and community facility for Penrith AFC, to be completed.
This will allow the club to relocate from its current ground and clear the way for a proposed £77m retail-led development for the town.
Steven Broomhead, NWDA chief executive, said: "The agency has moved swiftly and decisively in providing a range of measures to help the region's businesses through these challenging economic times. However, just as important is ensuring that key regeneration schemes, such as New Squares, are not adversely affected by the economic downturn.
"Without investment now, this scheme will not be able to progress which will have a hugely negative impact on the town's economy, including the potential loss of significant private sector investment. I'm very pleased that the agency's intervention will help Eden District Council and the developer secure an important first element of the scheme."
Cllr Colin Nineham, leader of Eden District Council, added: "We are grateful for the speed with which the NWDA responded to our request for assistance. Their intervention means it will secure local jobs, the future of the football club and more importantly shows confidence by the region in the scheme, which helps to attract potential investors to get the scheme back on track. Subject to council approval we are looking for a speedy resolution and a restart on site early in the New Year."