In April, the Otago Regional Council applied for $2.45 million to fund its Wakatipu Transport Strategy, which has plans to expand the local transport services.
Council policy and resource planning director Fraser McRae said the council had received preliminary approval.
"It's conditional, so we are just working through those conditions before accepting it," he said.
When asked if the full $2.45 million had been approved, he said the funding was "consistent" with the application.
He said the funding should be finalised in the next two weeks.
He hoped the new extended bus services would be up and running by the next financial year.
The council's regional transport committee chairman, Stephen Woodhead, said he was delighted with the preliminary approval.
"At last we have an approval for a three-year trial to get started by a target date of July 1, 2010, after an extended, long and frustrating delay," he said.
The three-year trial included funding towards marketing and timetable information, expansion of the bus routes to Kelvin Heights, Arthurs Point, Goldfield Heights, Quail Rise and further into the Lake Hayes development, funding for bus shelters on feeder routes, electronic ticketing and three real-time information boards and transponders on all buses.
Mr Woodhead said it would be an enhanced public transport service which was badly needed and would reduce traffic and parking congestion in Queenstown.
He said it would be funded by the NZTA funding, fares and through ORC rates.
The council could not rate for the service in the current year so would have to wait to include it in rates in the 2010-11 financial year.
He said the size of the rates increase had not been determined.
NZTA regional director Bruce Richards said the agency had approved the funding subject to a number of conditions.
He said the conditions were "technical" and involved integrated ticketing and real time information.
"They also need to be able to report to us the progress through the trial period," he said.
If the service was fully commercially viable after the three-year trial it would continue.
He said it had not been determined what would happen if the service needed more subsidisation after the trial.
Queenstown Lakes District Council infrastructure strategy manager Denis Mander said he would not comment until he had official notification the funding had been approved.
