Chris Smith, the culture secretary, yesterday handed over the lease for Somerset House to the charity charged with restoring the former London records office for births, deaths and marriages to its 18th-century glory.

Stephen Goodwin, Heritage Correspondent, toured the River Terrace - shut off for 150 years - and the vaulted rooms intended to house some fabulous collections.

In a near-Dickensian scene, a dozen or so inquirers - or perhaps gold diggers - are standing at desks, leafing through registers of wills. This is the Seamen's Hall, the room where, in Nelson's day, sea captains would go and wait for their commissions. The desks and fusty ledgers were later arrivals and will soon be gone as the Hall and the whole of Somerset House's south side is transformed.

With the aid of a pounds 10m grant from the Heritage Lottery Fund, announced yesterday, Somerset House is to be restored and large parts of it opened to the public. Lying between the Strand and the Thames, it is one of the most important 18th century public buildings in London, yet its vast quadrangular Great Court and grand facades have remained a virtual secret.

Sir Tim Sainsbury, chairman of Somerset House Ltd, the charity established to take over responsibility for the building from the Government, described the Great Court as "the finest open air living room in London". In a pounds 15m redevelopment programme the Trust intends to open routes through Somerset House linking Covent Garden and the South Bank, bring open-air theatre and other entertainments to the Great Court and install three major collections in vaults, where the nation's wills were stored.

Somerset House is the masterpiece of George III's architectural adviser, Sir William Chambers. His monumental building replaced a palace which from the time of James I had been home to successive royal dowagers. Queen Charlotte refused to live there and the King had it demolished to make way for government offices, mainly for tax collectors and the Navy.

The Inland Revenue are still there, and will pay rent of pounds 2m a year for their offices in the east and west wings. But the taxmen's cars, along with those of Lord Chancellor's staff, will be cleared from the Great Court by next summer.

For the architects, Peter Inskip and Peter Jenkins, the challenge is to take an abused 18th century Grade I listed building alongside a dirty, noisy six-lane highway, interpret its space and install modern services appropriate to displaying and conserving valuable art collections. Air conditioning is crucial.

The centrepiece will be the pounds 75m collection of silver, gold, micro-mosaics and marble inlays and gold boxes given to the nation by Arthur Gilbert, a British-born resident of California. Ranging from Ancient Rome to the Great Exhibition of 1851, many of the pieces once belong to popes, kings, queens and grand dukes. Gold boxes, such as the fabulous diamond-encrusted rococo boxes made for Frederick the Great, are set with precious stones.

Also bound for the south wing are the 800 works of Wernher Collection from Luton Hoo in Bedfordshire, including medieval ivories and Renaissance bronzes. The Courtauld Institute of Art's gallery in the north wing of Somerset House will reopen next autumn after a pounds 2.5m restoration programme. However it will still be short of space and eventually 70 famous Impressionist and Post-Impressionist pictures could be found a home on the south side.

Along with a car-free Great Court, one of the most exciting prospects will be the opening to the public of 480-foot Terrace Walk - painted by Canaletto - overlooking the Thames. Beneath its dismal asphalt roof is the Embankment building, which in George III's time stood out into the river. The building became landlocked with Sir Joseph Bazalgette's great engineering works along the Embankment, but the arched Water Gate and adjacent barge houses are still there in the building, awaiting restoration in a later phase.