Manchester's Metrolink expansion scheme is to receive £500 million in long-term low-rate loans from the European Investment Bank.
The EIB, the EU's long-term lending arm offers finance for major projects seen as promoting EU economic polices.
In the last five years it has provided more than £17 billion for UK projects.
The money for Manchester was described by the EIB today as part of the bank's pledge to support "sustainable public transport in leading European cities and to reduce reliance on private car use."
The long-term funding, over 30 years, will be used by the Greater Manchester Combined Authority to fund construction of the third phase of the light rail system, to provide new trams and infrastructure.
"Extension of Greater Manchester's Metrolink network will transform tram links across the conurbation," said Simon Brooks, EIB vice president responsible for the UK.
"The EIB is committed to supporting sustainable transport and successful completion of the project will improve the lives of Greater Manchester's residents for years to come."
Andrew Fender, chairman of the Transport for Greater Manchester Committee, said: "The Metrolink expansion is the single largest investment in public transport in the UK, outside of London.
"It will deliver a legacy for Greater Manchester that will regenerate and transform key district centres and provide new connections to the labour market for businesses. As such, it will play a vital role in keeping the region's economy growing now and long into the future.
"I'm pleased that we've been able to work with the EIB to realise this ambitious vision on a sound financial footing and I look forward to seeing the network grow and spread to new destinations, across the region, in the coming years."
The work's third phase involves expanding the current network to three times its size, covering a total of 60 miles of track, with 99 stops and served by a fleet of 94 trams.