A £3.5m cash injection looks set to transform Caernarfon’s historic waterfront into a vibrant artisan quarter.

Lottery funding will be used to regenerate part of the town’s slate quay known as the Island Site into a tourist hot spot with craft and design workshops and accommodation.

The project has been funded under the Heritage Enterprise programme which invests in neglected historic buildings, bringing them back into commercial use and encourages economic growth.

The funding was announced by Sir Peter Luff, chair of the Heritage Lottery Fund when he visited the site on Tuesday.

He said: "Bringing heritage back to life can transform areas and make them better places to live in, work in and visit. That's why it is absolutely vital that we continue to secure the future of the heritage at the heart of our communities.

“Not only do heritage projects like the one in Caernarfon create jobs, support skills and boost the local economy, but they also make a lasting difference to people’s lives.”

In a statement the Heritage Lottery Fund said the site would include “a series of workshops and spaces for small scale, artisan design coupled with unique historic tourist accommodation, as part of an ‘artisan quarter, celebrating the site’s historic purpose as an industrial site, with a forge and slate shipping quay that still dominate the waterfront”.

Harbour Trust chair Cllr Ioan Thomas, said “Where once slate was unloaded before being sent around the world for roofing and iron was forged before being used in such historic buildings as the Tower of London and Westminster Abbey by Brunswick Ironworks, now Caernarfon waterfront can once again be home to Welsh craftsmen of the 21st century.

“We are delighted that the Heritage Lottery Fund has recognised the exciting potential of the Cei Llechi development. Bringing these abandoned buildings back into life will not only create jobs and enhance the local economy, it will help secure the future of Caernarfon's historic waterfront and town centre.”

Siân Gwenllian AM for Arfon said: “The waterfront receives a constant footfall thanks to Caernarfon Castle on one side, and the Welsh Highland Railway on the other – so artisan shops, artists’ residences and community spaces will be an ideal replacement for the site’s current derelict industrial buildings.

“This is excellent news for the town and the wider North Wales area and will help knit modern Caernarfon together with its industrial heritage.”

The scheme is part of the wider £15m EU-funded Caernarfon Tourism Attractor Destination project, led by Croeso Cymru and managed by Cyngor Gwynedd.

The project also includes developments of Galeri 2, a station for the Welsh Highland Railway and improvement of pedestrian and traffic links.