A proposed $26.3 million trail network spanning 536km will create a "Mecca" of cycle tourism, according to Prime Minister John Key.
In Bannockburn, Central Otago, yesterday, Mr Key announced the Government would provide $13 million towards the trail, which would combine four existing Otago rides. The funding is part of a $25 million package for New Zealand's cycle trails.
The Central Lakes Trust announced it would provide $11.5 million towards the project - more than five times its highest grant.
The Otago Community Trust will contribute $2 million.
A new trail will be built from Cromwell to Wanaka and the Queenstown, Clutha Gold, Roxburgh Gorge and Otago Central Rail Trails will all be connected together.
A route will be built through the Cromwell Gorge and connect Clyde to Cromwell.
From there another track will connect Cromwell with the Queenstown Trail in the Kawarau Gorge.
The project will also involve restoring the old Alexandra Bridge. It was deconstructed in 1958 but the piers still lie next to the current bridge.
Mr Key said there was "no question" the four rides were already internationally some of the greatest in the world.
"This is just going to make them absolutely the Mecca for anyone who wants to go cycling." Cycle trails across the country attracted "high-value" visitors, and convinced them to stay longer, he said.
Central Lakes Trust chief executive Paul Allison said the trail would be a "game changer" for Otago. "It's a very inspirational project that will do a lot for our region."
The trust was in a "good financial position", he said.
"I need to give the community some confidence and some reassurance that this will not impact negatively or disadvantage any future projects. We have got reserves totalling more than that and our budget and grants process for the next few years will not change."
Otago Community Trust chairman Ross McRobie said it would provide employment opportunities and "ensure the sustained growth of regional towns".
Trail Network Steering Group chairman Stephen Jeffery said many consents would be needed from various councils. Different groups would likely take responsibility for different parts of the trail network.
Central Otago Mayor Tony Lepper said the project was "huge" for the region.
"It's another way of funneling visitors from Queenstown to us.
"Cromwell especially hit the jackpot." The Alexandra Bridge project was also a great spinoff of the new trail, he said.
Central Otago Rail Trail Charitable Trust chairwoman Kate Wilson said "my hope is that it will bring skiers over from Queenstown in the winter, which is fantastic."
Upper Clutha Tracks Trust chairman Grant Fyfe said there would be "land owner issues" creating the Wanaka leg of the trail.
"But it will happen. We're very excited." The project is expected to take five years.