City of York Council has been given £100,000 by the cabinet office to help it form a mutual business to run its library service.
The local authority had previously raised the suggestion of forming a mutual service to take control of its 15 libraries and archive service, and is set to push ahead with proposals following the grant.
The new service will continue to be funded by the council, but will also be able to earn its own income through running cafes and other services.
Francis Maude, minister for the cabinet office, visited York's Explore Centre today. He said: "Libraries are treasured local services. Running them as mutuals could raise service quality and make them financially sustainable in the long-term. People who work in libraries and local public archives are the real experts, they know what local people want and how best to deliver it. The mutual model puts power in their hands.
"City of York Council's support for this project is great news for local people. Together with the library service employees, they are pioneering a new way of delivering library and archive services which will be a model for others to follow. And I'm very pleased to pledge substantial backing from the Cabinet Office Mutual Support Programme, which will help get this project off the ground."
Council leader James Alexander said: "We have seen library closures happening across the country, including in many local council areas, and want to avoid this happening in York so a mutual approach is a sensible option worth exploring. This £100,000 from the Cabinet Office will let us support the service in any transition to a new method of delivery and is a great endorsement of the approach we are investigating to protect our library service for York residents.
"Our plans are for a professionally-led service, supported by the community, for the community it serves."