The Selwyn District Council has been working to implement the Lincoln Town Centre Plan for about seven years.
The funding will allow the first stage to be brought forward by one year to begin in the 2023/24 financial year.
It will see improvements made along the eastern end of Gerald St from West Belt to Kildare Tce, including the installation of traffic signals with pedestrian crossings at the intersection with West Belt, cycle lanes replacing parallel car parks, footpath and streetscape upgrades, and intersection and drainage improvements.
The district council will add $1.2 million of its own funding for improvements including the addition of nearby open-space car parking behind the shops on Gerald St, between William and Lyttelton Sts.
The district council is due to receive $5.59 million from the first round of the Better Off Funding package, assigned by the Government as part of the Three Waters Reform.
It has chosen the first stage of the Lincoln Town Centre Plan as its key project.
"It (the Lincoln Town Centre Plan) is well and truly overdue," Lyall said.
"The people of Lincoln have had to wait and wait, while we have seen development happening around the district.
"The three ward councillors have been fighting for funding in this area - I’m overjoyed we are getting this going."
Lyall said the district council could also bring forward the extension improvements along Gerald St and the creation of more car parking as it went through its long-term planning process.
He said the district council had responded to public concern earlier in the planning process about losing parallel parks to the cycle lanes, by purchasing a series of sections for car parking.
He said the improvements would make the town centre safer for pedestrians and cyclists.
Council chief executive David Ward commented on climate change considerations in his report to district councillors for the meeting.
"The Lincoln town centre upgrade supports improved mode choice and low emissions travel through the provision of safe, accessible and enjoyable walking and cycling options within the town centre,” Ward said.
The district council plans to use the remainder of the $5.59 million Better Off Funding package for feasibility studies into a Leeston health facility and enhancing the scope of the Arthur’s Pass to Te Waihora Cycle Trail, along with supporting mana whenua governance participation in district council subcommittees.
A second round of Better Off funding is set to be released to district councils in 2024.
