Railtrack, due to be privatised in May, is to get a large share of its debts written-off to help it pay for most of the pounds 650m improvement of rail links across London.
Sir George Young, the Transport Secretary, also announced yesterday that the Government would contribute about a sixth of the cost of Thameslink 2000, which aims to boost the existing North-South rail link.
Launched in 1988 and recently expanded to four services per hour in each direction, Thameslink currently suffers because of a lack of track capacity in south London and the fact its station at the King's Cross complex is too small.
The Greater London Council first proposed an expanded Thameslink in the early Eighties, but the project had been shelved because of cost constraints and uncertainty over the route taken by the new high-speed Channel Tunnel rail link.
The winning consortium chosen to build the pounds 3bn link, expected to be announced this week, will be paid by the Government to put in a new Thameslink station under St Pancras. The network's hub, it will cost in the region of pounds 85m.
Railtrack will pay for other improvements such as two new rail flyovers at New Cross Gate and Bermondsey in south London, work at at Blackfriars and Farringdon stations and new track near London Bridge.
There will also be a new connection to the East Coast Main Line, north of King's Cross, and the service will provide better links to many southern England destinations.
Clare Short, Labour's spokesman on transport, said the announcement was "long overdue" and added: "The Thameslink project has been delayed by at least five years and will cost the taxpayer much more because of privatisation."
The Government is expected to have written off around pounds 900m of Railtrack's pounds 1.5bn debts come privatisation.