The proposal, which has been worked up over the past year between Wandsworth and Lambeth Councils, the GLA and HM Treasury, would use Enterprise Zone legislation to capture local business rates revenue and channel it into the delivery of this major infrastructure project.

This is the first time such a scheme has been brought forward in England and could set a new blueprint for financing growth and job creating transport schemes.

The proposal involves the GLA borrowing up to £1bn to pay for the Tube extension, with a repayment guarantee provided by the UK Government to minimise borrowing costs.

Loan repayments would be made through two revenue streams:

1) Contributions from local developers collected by the local authorises under the section 106 and Community Infrastructure Levy (CIL) regimes.

2) The growth in business rates revenue within a new 'Nine Elms Enterprise Zone' which would include the regeneration area's key development sites. The zone would stay in operation for at least 25 years.

A map showing the proposed areas of Wandsworth and Lambeth included in the zone can be viewed on the council's website.

Over time these funding sources are expected to cover the complete repayment of the loan.

Enterprise Zones usually offer incoming businesses a discount on their rates bills to stimulate growth and investment. In this proposal, it would be used purely as a mechanism to fund the Northern Line Extension.

There would be no changes to planning powers within the zone, which would remain under the control of the local authorities.

The financing package would need to be agreed by Wandsworth Council, Lambeth Council and Transport for London before it can included in an application to build the scheme under the Transport and Works Act.

TfL plans to submit this application by the end of April and the three authorities will decide whether to approve the plans before then.

Leader of Wandsworth Council Ravi Govindia said: "This project could represent a major breakthrough in the way we pay for vital infrastructure projects in this country. We plan to use an enterprise zone as a funding tool for a major transport upgrade, which in turn, will create new growth, new jobs, and even greater tax receipts in the future.

"Over the long term the scheme would pay for itself while delivering a major economic and inward investment stimulus for London. It would give Battersea its first underground station and help bring an underused part of the Thames riverside back to life."

The new Tube tunnel and two new stations are needed to support 25,000 new jobs and 16,000 new homes across the Nine Elms on the South Bank regeneration area.

The proposal is to extend the Charing Cross branch of the Northern Line between the Kennington Loop and Battersea Power Station. It includes two stations, one at Wandsworth Road and another at Battersea Power Station.

The proposal will go before Wandsworth Council's strategic planning and transportation overview and scrutiny committee on February 20 and the finance and corporate resources overview and scrutiny committee on February 27. A final decision will be made by the council's executive on March 4.