The venue is in line for a grant of £3m by the Heritage Lottery Fund towards the £9.2m cost of a refurbishment scheme.

The listed theatre, built in 1865 and made famous by the BBC show The Good Old Days, which ran for 30 years from 1953, is to be restored to its Victorian and Edwardian-era glory, when it showcased the talents of such greats as Charlie Chaplin, Houdini and Lily Langtry.

In later years, The Good Old Days featured stars such as Ken Dodd, Danny La Rue, Roy Hudd, Arthur Askey and Hilda Baker.

In recent times acts have included Frank Skinner and singer Kate Nash.

Leeds Council says it will provide £5.2m towards the total cost and a £1m public fund-raising campaign will be spearheaded by the board of management.

The regional manager for the Heritage Lottery Fund, Fiona Spiers, said: "These wonderful buildings are held in great affection. The Heritage Lottery Fund's investment will help ensure that future generations will have the opportunity to enjoy using them and learning about their histories."

Leeds Council deputy leader Andrew Carter added that saving the City Varieties for future theatre lovers had been made a council priority.

He said: "This is fantastic news and I would like to thank the Heritage Lottery Fund on behalf of the people of Leeds for making this award and supporting the council's bid.

"It is a vital step forward in helping to secure the long-term future of the City Varieties and a key element in the programme to refurbish this unique and much-loved city centre building.

"We have made it a priority to save the City Varieties and this grant enables us to take a huge step forward in achieving that goal."

The music hall's condition is considered to be relatively untouched in 142 years and it retains many original features, including marks made by the original carpenters who worked on the roof.

The restoration money will be spent uncovering original decorations and fittings and turning the venue into a place where schoolchildren and adults can visit and learn about its history.

A new lift will be installed, the foyer and booking facilities improved and better toilets put in. There will be improved heating and ventilation and new auditorium seats.

Backstage areas will be improved and new office space provided.

The Heritage Lottery Fund says the £3m is an earmarked grant which does not guarantee funding, although it is an indication of positive support.

The council plans to put in a stage two bid in May next year, with a view to work starting in spring 2009. The new-look City Varieties is expected to be finished in September 2010.