The project has been handed to the national transport agency Transport Scotland to deliver in partnership with the rail industry.

Market consultation and testing is already under way and will continue over the next few months before the official procurement process, which is due to start by the end of this year.

Work is expected to begin on site in 2011 with completion around the end of 2013.

Crucial phase

It is estimated the 35-mile rail route, from the city centre to Tweedbank, Galashiels, will cost between £235 and £295 million.

Welcoming the preliminary timetable, Scottish Transport Minister Stewart Stevenson said: "The transition is a significant milestone and a defining moment in the evolution of this project.

"We remain committed to working closely with the three local authorities and look forward to the future with confidence."

He added: "Procurement is a crucial phase of the Waverley Railway Project.

Major step

"Our market consultation exercise will set the parameters of the project for potential bidders and provide them with the information necessary to prepare the best tenders for this important transport scheme.

"It will also enable potential bidders to ask key questions before the procurement phase begins and we expect significant interest from a number of companies."

Transport Scotland chief executive Dr Malcolm Reed said: "This is an important project for Edinburgh, Midlothian and the Borders and we will continue to work closely with all three local authorities as well as in partnership with the rail industry to deliver this new railway on time and within budget and with the right skills and experience engaged, I am confident we will deliver."

Councillor Russell Imrie, Midlothian Council's strategic services spokesman, said: "This announcement represents a major step forward for the Waverley project, which will play a crucial role in creating jobs, improving access to the employment market and providing more housing in Midlothian."

According to the Waverley Railway Partnership, improved rail links could act as a catalyst for the creation of 700 extra houses in Midlothian and 1100 in the Borders.