The ground-breaking scheme to rebuild Donald Campbell's Bluebird boat and bring her "home" to Coniston took a giant leap forward this week.

Three-and-a-half years since the world famous boat was recovered from Coniston Water, a £900,000 bid has just been submitted to the Heritage Lottery Fund by the village's Ruskin Museum.

The bid is part of a £2 million scheme for the museum to acquire the wreckage of the boat, to restore and rebuild her to operational order, to build a purpose-designed extension at the museum to house her, and to create an exhibition about the boat and the Donald Campbell story.

Campbell's daughter, Gina, said: "It's been a long time coming so I'm delighted."

A decision on the lottery bid is hoped for by the end of the year. It is estimated it will take at least two years to rebuild Bluebird, and it is hoped that the boat could be back in Coniston by 2007, which would be the 40th anniversary year of Campbell's final and fatal run on the lake.

Campbell died on January 4, 1967, while attempting to break his own world water speed record. Bluebird was recovered in March 2001, and Campbell's remains were brought out later that year. He was buried in Coniston churchyard, and his grave now attracts a steady stream of visitors.

As well as the lottery bid, another similar sized bid for funding is being submitted to Rural Regeneration Cumbria, the body set up to aid recovery from the foot-and-mouth crisis, which has indicated its support in principle for the project.

Ruskin Museum curator Vicky Slowe said the bid was complex, had involved a naval architect and many other professionals, and amounted to two four-inch ring binders full of information.

She confirmed the plan was to rebuild Bluebird to full running order, although whether or not she would be run would be decided at a later date.

"We feel that the names of Coniston, Campbell and Bluebird are sort of synonymous in the collective unconscious and what we are wanting to do is to create a really magnificent memorial to the boat and to the man."

Westmorland and Lonsdale MP Tim Collins, who is due to visit the museum today (Friday), was among those backing the scheme: "I can't imagine a more fitting home for Bluebird.

"Coniston is the spiritual home of the Campbell legend and I am happy to offer my 100 per cent backing for the museum's plans to house his famous record-setting craft."

The boat is currently owned by the Campbell Heritage Trust, and will be bought by the museum as part of the scheme. The Ruskin Museum and Gina Campbell declined to comment on the price of the boat, which they said should remain confidential during the funding negotiations.

It is understood that an arrangement for the museum to acquire the boat for £1, together with a payment for the "intellectual rights" connected with displaying Bluebird, would not now go ahead.

Previously, Gina Campbell told the Gazette that money paid for the "intellectual rights" would be used by the Campbell Heritage Trust to help those challenging British land and water speed records. This was why the trust had been set up.