A £300,000 study is under way into how a proposed new rail link between Oxford and Bedford can be funded.

The detailed investigation is seen as another major step forward for an east-west rail link, coming only weeks after Deputy Prime Minister John Prescott signalled support for the project.

The report will examine how some of the millions made in land price increases resulting from the new rail link could help finance the scheme.

It will also look at the cost of track and signalling, even examining possible timetables for freight and passenger services.

The latest study is being funded by the East-West Rail Consortium and four local authorities, including Oxfordshire County Council.

The Government and the South East England Regional Assembly and Milton Keynes Partnership are among the other contributors.

The results of the study should enable the Government to decide whether it wants to see the project delivered in time to meet substantial housing and business development proposed along a corridor stretching from Milton Keynes to Bicester.

The study will further boost hopes that trains could be running between Oxford, Aylesbury, Milton Keynes and Bedford within five years. Consultants Steer Davies Gleave, Llewelyn Davies Yeang and Knight Frank will work with developers, landowners and councils on funding options.

Adrian Saunders, Oxfordshire County Council's rail development officer, said: "We hope to have the report finalised by July.

"We are working on the basis that the scheme would be largely funded from the private sector."

He said an important part of the latest work is to consider how increases in land value can be "captured and invested" in the rail scheme.

An earlier business case assumed an hourly train service. But two trains each hour are now thought to be necessary because of announcements on housing growth in Bicester, Bedford and Milton Keynes, Mr Saunders said he did not foresee many technical difficulties in building the line, with work likely to take between 18 months and two years.

Earlier this month, the Office of the Deputy Prime Minister published a report calling for further development of the East-West rail project. The study looked at ways of improving transport in major growth areas and the Cambridge-Oxford "high-tech arc".