The Harbour Square Public Realm Project has been awarded over £1.2m, paving the way for the full delivery of the plans which were approved by Council's Planning Committee earlier this year.
Council will make a 10% contribution to the total costs of the project which are estimated to be £1.38m.
A work of art marking the city's textile past will be the focal point for a project, which also involves upgrades to the wider public realm in the Harbour Square area.
Welcoming the funding, Mayor of Derry City and Strabane District Council, Councillor Patricia Logue, said: "I am delighted that we can now look forward to physical work taking place on the ground to complete this eagerly anticipated project.
"The finished work will significantly enhance this section of our city centre and the artwork will create a lasting and fitting tribute to the key role factory workers played in shaping our industrial heritage.
"The Harbour Square Redevelopment project is an integral part of the Central Riverfront Development Plan outlined within the City Deal proposal.
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"It will be a high quality public realm space that links the historical core of the Walled City to our plans for a new attractive and lively riverfront zone."
The artwork will formally depict the city's industrial heritage with specific reference to the women who worked in the shirt factories.
Member approval to accept the contract of funding was granted at this month's meeting of Council's Business and Culture Committee and ratified at Full Council this week.
The artist Chris Wilson has been appointed to carry out the creation and installation of the artwork which will consist of three bell shaped forms up to 3.5m in height based on the shapes of spools of thread as used in shirt factory sewing machines.
The works will include the reconfiguration of the paved area with the creation of some new grass and planted sections including the public art installation, and will comprise soft landscaping, footways and a carriageway.
Pauline Campbell from the Department for Communities said: "The Department is committed to the development of cities and towns across Northern Ireland through initiatives which promote urban renewal and development of public spaces. We do this in collaboration with a range of partners and stakeholders, and in conjunction with the local community.
"This landmark Derry City and Strabane District Council scheme will enrich and enhance this part of the city, while acknowledging its textile heritage – creating a focal point for residents and visitors alike."
Mary White, speaking on behalf of the Factory Girls added: "We are absolutely delighted that the vision for a permanent artwork to celebrate and honour the role of Factory Workers played in shaping our City will now become a reality.
"The skilled and hard working women who worked in the factories were the backbone of Derry's economy and financially supported many of the households in the city.
"The shirts and textiles they manufactured were exported around the globe and Derry's factories had a worldwide reputation for quality and craftsmanship.
"The finished artwork will be a lasting physical tribute to all of those who worked in the factories and their significant achievements."
