A new £12m music, cinema and arts venue is to be established on the Shetland Islands after the project secured investment worth £2.8m from the European Regional Development Fund (ERDF).

It is hoped that the Mareel centre, which will be situated on Lerwick's waterfront, will become a centre of excellence for "international creativity", as well as driving Scotland's cultural and economic development. Led by Shetland Arts Development Agency (SADA), the new facility will incorporate a 330-seat performance auditorium, which will also be able to accommodate 700 people for a standing concert.

A 159-seat digital cinema, rehearsal space for music, dance and drama, a recording studio and a cafe bar are also included in the plans for the venue, which is expected to open in autumn 2010. Gwilym Gibbons, director of SADA, said: "Mareel will provide a creative hub and focus for our creative community, and Shetland as a whole will benefit from a unique, state-of-the-art facility.

"Mareel will enhance lives and enable those visiting, living and returning to our islands to have a place to develop new skills and fulfil their creative potential and ambitions." In addition to the ERDF funding, Scottish Arts Council Lottery Fund has invested £2.12m in the scheme, while £5.19m has been contributed by Shetland Islands Council. Both Highlands and Islands Enterprise and Shetland Development Trust have awarded the project £965,000, and a further £50,000 has come from The Gannochy Trust.

SADA has already outlined a ten-year vision for the venue, which will see it become a regular venue on touring schedules of prominent musical and performing artists.