SDLP Cllr Martin Reilly said the funding package by the INTERREG programme is "critical to make the project happen".
He said: "This site has incredible potential as a transport nexus in the North West. People in the city want to see this historic building developed and put back into use. I'm delighted that we're now getting somewhere, with the assistance of the European Union.
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"More and more people are choosing to use the railway line, so we need a train station that is fit-for-purpose, and which connects with other modes of transport throughout the city."
Sinn Féin MP Elisha McCallion said: "This is a wonderful old building and with this money, and the funding from the Executive secured by former Infrastructure minister Chris Hazzard, it will be brought back to life and into the 21st Century.
"This transport hub will improve connectivity throughout the wider north west, including strengthening transport links to Donegal, and will be of huge benefit to locals and tourists alike.
"It will help encourage more people to use public transport which will be better for the environment and promote sustainable public transport services in the north west.
"It also shows the value of EU funding which projects in the future may not be able to avail of as a result of the disastrous Tory Brexit agenda."
(CD/LM)
