Known as the Nuneaton North Chord, the one-mile long section of line would enable freight to cross from Peterborough to the West Coast Mainline without disrupting passenger services.

If approved by planning authorities, the £40 million Department for Transport project just outside Nuneaton is expected to take tens of thousands of lorries off roads around Peterborough, including the A1, A14 and A47.

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Welcoming the news today, Peterborough MP Stewart Jackson said: "With large scale residential developments in the northern parts of Cambridgeshire and Northamptonshire, greater pressure is being put on the A14 and A47.

"Delays caused by congestion are already having a very serious impact on business. That can be relieved by putting more freight on the railway and taking it off the road."

The announcement comes after plans were unveiled to spend £80 million on upgrading the Felixstowe to Peterborough railway line by widening tunnels and strengthening bridges, prompting warehousing giant Gazeley to draw up plans for an inland port called Magna Park on land east of Park Farm, Peterborough.

Peterborough City Council's cabinet member for strategic and regional partnerships councillor Mark Collins added: "I have pushed hard for the entire line to be upgraded, not just the stretch between Felixstowe and Peterborough. Had that been the case, freight would have been unloaded in Peterborough, meaning congestion would have moved from the A14 to the A1.

"Much of the freight is bound for the north west conurbation of Liverpool and Manchester, and this will allow freight to travel straight through Peterborough, crucially reducing the amount of lorries on the roads."

Rail Minister Tom Harris said: "We've invested £80 million to increase freight capacity on the Peterborough to Nuneaton line.

"It's now for Network Rail to ensure that money delivers for rail users and the local community."

Network Rail's route director Peter Strachan said: "This is a key project which will allow us to improve Britain's railways and at the same time bring about environmental benefits."

The rail company is likely to submit a planning application for the Nuneaton North Chord later this year.

If consent is granted, work could start before summer 2009, with the line in use by December 2010.