Lord Howe has approved Papworth Hospital Foundation Trust’s construction of a £165m hospital building under the private finance initiative, HSJ understands.

The trust revealed the minister had signed off the business case for the new 310-bed hospital to be built on Cambridge University Hospitals Foundation Trust’s main site. The plans have been forwarded to the Treasury, which will take the final decision.

One senior source familiar with the plans said that despite the trusts’ insistence that Papworth would remain independent, it was likely “the trusts will merge in the long term”.

The source told HSJ: “There are very good synergies between the two trusts and there would be savings on having one board rather than two.”

However, in a statement Papworth said it would “remain autonomous clinically and managerially, retaining its own board of directors”.

Trust chief executive Stephen Bridge said: “The clinical, research and economic case for the new Papworth Hospital is “beyond doubt. 

“The trust looks forward to the Treasury signing off the case for Papworth to relocate to the Cambridge Biomedical Campus, which is fast becoming one of the most vibrant biomedical communities in the world.” 

Mr Bridge said the heart and lung research institute, a joint venture between Papworth and the University of Cambridge, was dependent upon the relocation. He said it would create jobs and attract leading clinicians and researchers to the city.

The trust said its current site at Papworth Everard was cramped and unsuitable for modern healthcare while relocation would give patients with co-morbidities better access to specialist diagnostic and clinical services at Addenbrooke’s Hospital.

Chancellor George Osborne carried out a review of PFI last year following widespread condemnation of the funding mechanism by bodies including the National Audit Office. An NAO report criticised nearby Peterborough and Stamford Hospitals Foundation Trust’s PFI deal, which has left it in deep financial trouble.

The Papworth project was first advertised in the Official Journal of the European Union in August 2010 and attracted interest from six consortia. Of these, two - one led by Bouygues and another by Skanska - are still in the running.

It is hoped a preferred bidder will be selected by autumn next year, with construction being completed by early 2017.

A Department of Health spokeswoman insisted the department was still considering the business case and “a joint decision with the Treasury will be made soon”.