More than 1,000 shipyard jobs will be secured after the Ministry of Defence agreed to bail out Swan Hunter, it was claimed yesterday.

It is believed civil servants are preparing to pay up to £36m to plug a hole in the accounts of the Wallsend yard, which was facing financial problems after a naval project ran millions of pounds over budget.

The apparent agreement follows months of negotiations, and strong lobbying from the North.

Chairman Jaap Kroese - who invested his personal fortune to bring shipbuilding back to the Tyne in 1995 - said: "There is an agreement that the MoD will provide support, which is excellent news."

And Billy Coates, a senior organiser for the GMB, which represents Swan Hunter workers, welcomed the move, saying: "There seems to be a will out there from the Government to recognise that Swan Hunter is an integral part of the shipbuilding industry."

Swan Hunter won a £160m contract to build the Largs Bay and Lyme Bay sister ships in 1999.

But problems adapting an off-the-shelf design sent costs spiralling and put the project nine months behind schedule.

It was previously feared that the Ministry of Defence would be unwilling to renegotiate the original fixed price contract.

And defence procurement minister Lord Bach previously ruled out financial aid for the yard.

Mr Kroese added: "We are not talking about a subsidy or a grant. This is a renegotiation of the original contract.

What we have wanted all along is to keep Swan Hunter working and keep the people here working."

He was unable to confirm the size of the funding, but an MoD source said it would cover up to 90pc of the shortfall, around £36m.

The decision was welcomed on the Tyne yesterday.

Davey Corden, 32, of Middlesbrough, who works in the plate room, said: "We have all got families so this decision is a big relief.

We can look forward to Christmas now and this is a great feeling after all that has happened. It doesn't matter how long this lasts, we're just relieved to have work at all."

Yard manager Geoff Marshall refused to confirm the jobs had been secured, but admitted the firm would be delighted if the contract was agreed.

He said: "We are hopeful and optimistic for future work - we will take any work, not just jobs from the MoD.

If this is secured, it's great news but we will continue to fight for jobs after this contract runs out.

Hopefully, there will not be any more job cuts after that but we just don't know."

Nick Brown, MP for Newcastle East and Wallsend, has lobbied ministers to safeguard the future of the yard.

He added that Swan Hunter was still facing a two-year gap in its order book from 2006 when work finishes on the Largs Bay and Lyme Bay.

Construction of the £2.9bn aircraft carriers - which will see Swan's double its workforce to 3,000 -will not begin until 2008.

Mr Brown said he was meeting Secretary of State for Trade and Industry today "to discuss these issues and see what can be done".

**********

Yard snag

Largs Bay brought shipbuilding back to the Tyne, but the naval vessel came close to swamping Swan Hunter.

The launch of the fleet auxiliary ship last year was a proud moment for Swan Hunter chairman Jaap Kroese, who invested his personal fortune to resurrect the yard after it went into receivership in 1995.

But problems producing the 16,500-tonne naval landing ship - one of four identical vessels - blew a £40m hole in Swan Hunter's accounts.

The company acquired an off-the-shelf Dutch design when it successfully bid in 1999 to build the £160m Largs Bay and the Lyme Bay sister ships.

Losses soared when Swan's encountered problems adapting the plans to Ministry of Defence specifications, and the project was delayed.