Oldham Council has secured funding from Arts Council England to develop and move Oldham Coliseum Theatre to a new home.
The initial funding is in the form of a development grant of £465,000, which will be used to support a stage two application for £5m towards the total cost of the regeneration scheme.
The theatre's new venue would be south of Union Street, alongside a proposed Oldham Heritage Centre, and includes a café, terraced bars and accessible heritage collections.
The project was granted an initial £615,000 from the Heritage Lottery Fund in November and will support a later second-stage bid for a total grant of £3.9m.
Oldham Coliseum says it already attracts 100,000 annual visitors, generating £17.5m a year.
Kevin Shaw, artistic director and chief executive at Oldham Coliseum, said: "The increased opportunities that the theatre will be able to take advantage of both artistically and for the audience are so much more than we have in the cramped building on Fairbottom Street."
Oldham Coliseum recently undertook a £1.5m refurbishment of its current venue to remove asbestos and update the heating system, but it now believed to have outgrown the building on Fairbottom Street.
Shaw added: "This refurbishment was essential regardless of whether we would eventually move out of the building or not. Not only would the building breech health and safety policies, it would also have meant that the Coliseum as a company would have had to shut down because the building's heating system simply wasn't sustainable."
While the recent government spending review has drastically affected theatres and arts organisations across the country, Oldham Coliseum Theatre is one of a handful of the 32 building-based regional theatres to have received significant additional investment from the Arts Council to expand the theatre's artistic output.
Cllr Jim McMahon, Oldham Council leader, said: "The theatre is hugely important to our community – a major cultural asset which also delivers important educational work right across our Borough.
"The council supported the recent refurbishment work to ensure the theatre could continue during the transition to a new venue where it can then thrive with an even brighter long-term future."
The architect on the project is Levitt Bernstein.