The government today gave the go-ahead for a £344 million expansion of London City Airport.

Plans have been approved for an extended terminal, new aircraft taxiway and parking spaces for aircraft.

London City airport estimates that the scheme will create 1,600 airport jobs for staff, together with 500 construction jobs, and could potentially contribute £1.5 billion to the UK economy by 2025.

The plans are designed to increase connections within the UK and Europe and support business opportunities and investment.

There will be new space for aircraft to taxi to and from the runway, so more can use it, and new stands to allow bigger aircraft to use the London Docklands airport.

This will mean more flights at peak times, with bigger, newer and quieter aircraft, according to the Department for Transport.

“An extended terminal will give the airport the space it needs to cope with the increase in passengers and services, bringing a better passenger experience,” the DoT said.

London City will also make a number of investments in transport links around the airport, including funding the £2.6 million cost of additional Docklands Light Railway rolling stock, investing in a bus and taxi access scheme and improving walking and cycle routes to the airport.

The planning decision was formally approved by transport secretary Chris Grayling and communities and local government secretary Sajid Javid.

A “generous” compensation package will be provided by the airport to support local residents affected by the increase in air traffic, the government pledged.

Chancellor Philip Hammond said: “London City airport’s ambitious growth plans will boost international connections, strengthening the City of London’s links to destinations across the world, and send a clear signal that Britain is open for business.

“Making it easier to visit and do business in the City of London will help drive forward our economy and further strengthen the city’s status as the world’s leading financial centre.

“This is a real vote of confidence in the resilience of our economy, creating over a thousand new jobs.”

Grayling said: “This is fantastic news for London and Britain as a whole.

“I am determined to invest in the infrastructure this country needs, to help people get around more easily, boost investment and create opportunities.

“London City airport is an engine for growth in the City, serving the community in which it operates and providing a vital link to our regional airports and the rest of the country.

“These new plans for London City airport will deliver jobs and business in the capital and more widely.

“Companies across the UK will be able to bid for construction and procurement contracts worth £294 million, meaning the benefits will be felt up and down the country.”

Javid added: “The expansion of both the airport and terminal building will provide a real boost to economic growth and job creation.

“Commuters also stand to benefit from the expansion of the terminal and improved facilities which will make using the airport more pleasant and efficient.”

London City said the expansion will also open up opportunities for airlines for longer haul destinations including the Gulf and Middle East, Turkey, Russia and the east coast of the US.

The plans will enable the airport can add a further 32,000 flights by 2025, movements which are already permitted.

This will help to unlock more air capacity within London’s airport system in advance of a new runway for the south-east, according to London City.

Chief executive Declan Collier said: “As the airport serving by far the highest proportion of business travellers in the UK (52%), who do some £11 billion of trade in Europe annually, today the government has sent a strong message that London and the UK are very much open for business.

“I welcome the decision and look forward to delivering new airport capacity for the south-east by 2019.”

Gatwick chief executive Stewart Wingate said: “The expansion of City airport is great news for the national economy and will generate welcome competition between the network of airports serving the south-east – delivering more choice and cheaper fares for consumers.

“Today’s quick decision demonstrates what can be done when an expansion scheme that is deliverable is chosen.

“The south-east, however, desperately needs even more airport capacity and only Gatwick can deliver it because our plans are simple, low risk and are better for the environment.

“Unlike Heathrow, Gatwick expansion would also be entirely privately financed and does not need a £5 billion public subsidy to put the M25 into tunnels or pay for new rail links.”