The long-pending demand of Kerala for a rail coach factory in Palakkad has been approved by the centre on Thursday.

The union cabinet approved the setting up of a new rail coach manufacturing unit as a joint venture project to manufacture 400 coaches per annum at an estimated cost of Rs 550 crore excluding the cost of land.

Railways shall contribute 26 per cent of the equity in the joint venture.

The coach plant will be set up at Palakkad where land to the extent of about 239 acres is available for use which will be purchased by the railways from the state government.

"This will help Indian Railways in ensuring timely availability of passenger coaches to meet the increasing demands of passenger transportation. It shall also ensure induction of state-of-the-art aluminium coaches for the national transporter," according to the statement issued by the government.

Kerala chief minister Oommen Chandy had last week met railway minister Dinesh Trivedi, seeking speedy approval for the project. Trivedi had assured that the foundation stone of the factory would be laid this month.

The work on the project will commence during 2012-13 and will be completed within a period of 36 months.