The Sabre engine is being developed for “Skylon”, an 84-metre reusable spaceplane capable of taking off from conventional runways and reaching low Earth orbit.
The new investment, made through the UK Space Agency, will pave the way to building the first full-scale prototype.
It follows the success of critical tests of the technology involving the rapid cooling of air entering the engine at hypersonic speed.
Sabre, designed by the Oxfordshire-based company Reaction Engines Ltd, stands for Synergistic Air-Breathing Rocket Engine.
Unlike every other rocket engine, it breathes air while travelling through the atmosphere which is used to burn liquid hydrogen. As it nears the edge of space, it switches to an onboard oxygen supply.
Skylon would do the same job as today’s rockets, delivering payloads of up to 15 tonnes into low Earth orbit, but at a 50th of the normal cost.
Operating as an aircraft that can land and take off again and again, it has the potential to revolutionise access to space.
The Sabre engine could also be used to power a new generation of Mach 5 (five times the speed of sound) passenger jets, cutting the flying time from the UK to Australia to less than four hours.
Science minister David Willetts, who announced details of the investment at the UK Space Conference in Glasgow, said: “By supporting this breakthrough technology we are giving the UK a leading position in a growing market of new generation launchers and removing one of the main barriers to the growth of commercial activity in space.
“Sabre has the potential to completely transform how we currently access space whilst further boosting the burgeoning UK space sector.”
Development of Sabre could also create an estimated 21,000 high value engineering and manufacturing jobs.