It will have stops in Leven and Cameron Bridge, linking the east of Fife with Edinburgh and Dundee.
Improved bus services are also part of the plan, which was announced this morning.
Passenger travel ceased on the line in 1969, and it is hoped that the will bring employment and tourism opportunities in under five years.
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Mid Fife and Glenrothes MSP Jenny Gilruth said: “After exactly 50 years the Leven Railway will reopen under an SNP Government – I could not be prouder. My constituency is going to be re-connected to the Fife Circle and to Scotland.
“I hope we can reflect on how truly significant today’s announcement really is.
“I would like to thank the Cabinet Secretary for his commitment to Leven’s Railway; he’ll know how much this means to me as I never missed an opportunity to make the case to him directly.
“The people of Levenmouth will now expect action – and who could blame them after half a century. I will be watching closely to ensure that Fife Council and Transport Scotland now work to take Leven’s railway forward at pace. This is a great day for Levenmouth.”
Kirkcaldy MSP David Torrance, whose constituency includes Buckhaven and Methil, paid tribute to the work of the Levenmouth rail campaign, which has continued to put forward the case for reopening the line.
He said: “Absolutely incredible news today from Michael Matheson, that Levenmouth will finally be reconnected to to the rail network.
“This will bring huge potential to the area, not only allowing residents in the area to travel outwith the area for employment, education and leisure, but will also bring huge economic potential for investment and tourism within the area with the backing of a good reliable public transport system.
“Credit must be given to the incredible work of the Levenmouth rail campaign.
“They have continually kept the raillink as a high profile campaign at the forefront of the transport agenda.
“It is testament to their determination that despite multiple setbacks and years of campaigning they persevered to this moment today.
“They know that this will benefit everyone in the Levenmouth area and their hard work has certainly paid off.
“I have supported the Levenmouth Rail campaign for the last 8 years, been to countless meetings and Walk the Line events, and participated in Chamber debates on this topic to raise awareness of this campaign in Parliament, to government and to Transport Scotland.
“To see all the hard work of that I, my colleagues Jenny Gilruth MSP and former MSP Tricia Marwick - who championed this campaign from the very beginning - and most importantly the LMRC have put in to lay the foundations for this announcement today come to fruition gives me great pride.
“The case for reconnecting Levenmouth to the rail network has always been there. This is an area of multiple deprivation, with a low level of car ownership and one of the largest urban areas in Scotland without a railways line. I would like to thank everyone involved to taking steps to allow this to change the futures of so many in Levenmouth.”
Cabinet Secretary for Transport, Infrastructure and Connectivity Michael Matheson said: “I am extremely pleased that the case has been made for the Levenmouth rail link and I look forward to seeing this project being taken forward to the next stages of design.
“The detailed appraisal work that has been carried out suggests that improved transport links, which give Leven a direct rail link to the capital, will lead to an enhanced local economy, bringing better access to employment and education and the potential for new investment. Easier and more sustainable travel options will make it easier for people to reach hospitals, schools and visit other areas of the country as well as giving better access Levenmouth.
“I would like to acknowledge the hard work of local MSPs, elected members and interest groups who have campaigned for the reopening of this line and I look forward to working with all partners to realise all of the benefits that improved connectivity can bring.”
The project will now go forward to the detailed design phase with initial estimates of construction and preparations costs of around £70 million. Mr Matheson also committed an additional £5 million to a Levenmouth Blueprint fund available to partners to maximise the benefits of the Scottish Government investment in the area.
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