Work to begin on new £4.5m National Film Theatre after a year of delays

Work on turning the redundant Museum of the Moving Image in London into a revamped, extended home for the National Film Theatre is to start next month after delays of more than a year.

The £4.5m project to refurbish the NFT on the South Bank, which is run by the British Film Institute, is due to be completed by autumn in time for the 50th anniversary of the British Film Institute's London Film Festival.

The work was originally expected to be completed this summer but was delayed because of problems with funding.

Announcing the new timetable yesterday, Amanda Nevill, the BFI's director, said the aim was to use the refurbished NFT as a "pilot" or " stepping stone" to the creation of a state-of-the-art film centre. "This development is an important step forward in testing our vision for a national landmark building for the celebration of film," she said. But she said the BFI was still in limbo over long-term plans for what was once touted as the world's most sophisticated film centre.

The preferred site is not far from the existing NFT, and part of a thriving cultural quarter with the Tate and National Theatre. But the area is bogged down in planning rows and Ms Nevill said a decision on the new film centre could not be made until spring, when the results of a planning inquiry are expected. It is understood that a site in the heart of a redeveloped King's Cross remains an option if red tape makes progress on the South Bank impossible.

"With the Olympics coming up in 2012, we suspect that there will be a much greater emphasis on unpicking any planning problems," Ms Nevill said.

Eddie Berg, artistic director for the BFI on the South Bank, added: " Ideally we want to be on the South Bank. That's where our public history is. "

He said that winning the Olympics bid had given impetus and political desire to sorting out key areas in London, and that the South Bank would be the "cultural showcase" of the capital in 2012.

However, even if planning problems can be resolved, the BFI confirmed yesterday that the film centre plans had been dealt a further blow this year.

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The BFI receives a grant of £16m a year from the UK Film Council for its work but also has considerable assets, notably its headquarters in a valuable central site off Tottenham Court Road. Development of a film centre has long been predicated on being able to raise substantial capital against these assets.

But this has been torpedoed by an eagle-eyed Treasury official, who noticed that the BFI was not given legal independence from the Film Council when the council was established in 2000. The Treasury recently confirmed that, under accounting rules, the BFI cannot therefore raise money on its own account. The Department for Culture, Media and Sport (DCMS) is in talks with the BFI over the situation.

In the meantime, the DCMS, London Development Agency and Heritage Lottery Fund have all given grants towards the refurbishment. The NFT will expand into the site of the Museum of the Moving Image, which closed in 1999.

In addition to the three existing screens, there will be a "mediatheque" where visitors can view archive material, a digital cinema for up to 36 people, and a gallery space for fine artists.