Preston City Council said the refurbishment of the city's Flag Market is set to start in July in preparation for the Guild festival in 2012.
The improvement scheme involves the existing York stone flags at the market being re-grouted and the area adjacent to Crystal House being re-surfaced with new natural stone paving, providing an improved surface for events and activities.
The council added redundant street furniture will be removed to de-clutter the space.
As part of the improvement works, the council said nine trees will be removed to open up views of the Harris Museum and Art Gallery and to allow better use of the Flag Market during the Guild festival.
New trees will be planted adjacent to Crystal House to replace the felled trees and it is proposed that some of the removed timber will be used in unnamed projects elsewhere in the city. Two of the trees are being relocated to one of Preston's parks.
In order to ensure public safety, the council said Cheapside will be temporarily closed for a period whilst the preparatory tree work is undertaken.
The scheme is being funded by Preston City Council, which is costing £125,000, with the new paving stones, costing £75,000, being supplied by Lancashire County Council.
Preparatory work at Preston Flag Market is set to start in June with the improvement works due to start in July and completed in November 2011.
The council also hopes to submit a funding bid this summer to the Heritage Lottery Fund for £1m towards improvements to the Preston Cenotaph.
Mick Lovatt, environment director at Preston City Council, said: "The Flag Market is an iconic area, right in the heart of Preston city centre and the backdrop to the wonderful Grade 1-listed Harris Museum. It is a much used and treasured public space that will play an important part during the Preston Guild celebrations in 2012.
As such, we want the Flag Market to be ready and fit for purpose during the Guild and this improvement work will do that. Whilst we will be losing nine trees, this will open up the space so that the Flag Market can be used more easily, as well as open up views to the Harris Museum."
The funding for the scheme has been set aside in the council's capital programme.
The bid to Heritage Lottery Funding for the second phase of the improvements to the Cenotaph are for improvements to stone work and railings, as well as the creation of an interactive "scroll of honour" in the Harris Museum to remember past service men and women from Preston, who have died since the end of the Second World War in 1945.
Preston has held the Guild festival every 20 years.