The funding brings the total State Government contribution to the $9.4 million project to $7.5 million.

Other funding for the project will come from: Victorian Mineral Water Committee - $300,000; Federal Government - $500,000; and Sustainability Victoria - $50,000.

Meanwhile, Hepburn Shire Council will contribute $1.2 million, a figure agreed on in 2004, to be repaid with rent from the bathhouse.

Hepburn Shire CEO Victor Szwed said the council was delighted with the State Government's proposal which included council working with the Department of Sustainability and Environment to finalise a new long-term lease.

Mr Szwed said the lease would be advertised early to allow a lessee to re-open as soon as possible after building was completed.

"The extra funding which has been announced had been pursued for more than 12 months by our last council and our new council," Mr Szwed said.

"The arrangement includes the council being on a project reference group to oversee the development.

"The extra money will allow for a quality redevelopment which would ensure that the bathhouse has a long-term sustainable future, at no cost to the community."

Mr Szwed said the State Government's decision to appoint Major Projects Victoria to oversee the project and act as committee of management during building was welcomed as the council did not have the resources to manage

such a large project.

"This arrangement also minimises the risk to council and ratepayers in relation to the building project and potential issues," he said.

Mr Szwed said that although the bathhouse would be closed for up to 14 months, the long-term benefits of the redevelopment would outweigh any inconvenience this would cause.

The redevelopment is expected to begin late this year.

The current tenant's occupancy, which has been extended for six months, will expire in October.

In an article last week about the funding, The Advocate reported Ballarat Independent MP Dianne Hadden as saying Hepburn Shire should not be asked to fund the $3 million shortfall.

That statement came from a Hansard Report dated November last year provided by Ms Hadden's office last week.

Last Thursday, Ms Hadden said she was pleased the State Government had listened to her request to provide the $3 million shortfall because it could never have been funded by ratepayers.