CAIRN Energy has won official approval for the £1 billion development of the Catcher field in the UK North Sea, which the government said reflected extraordinary interest in the territory.

The Department of Energy and Climate Change gave the green light for a plan under which Edinburgh-based Cairn and partners expect to start producing oil from Catcher in 2017.

The approval provides a big vote of confidence in Cairn Energy and vindication for the company's decision to return to its North Sea roots under chief executive Simon Thomson.

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Expected to produce around 100 million barrels oil, Catcher is one of the biggest fields developed in the North Sea in recent years.

Production is expected to peak at 50,000 barrels a day putting Cairn in line for a massive boost to its revenues.

Cairn has a 30 per cent stake in Catcher, which will be worth 15,000 barrels of oil daily at peak production.

The plans, developed by Cairn with Premier Oil and Hungary's MOL, would have been subject to rigorous vetting by officials.

The approval of Catcher comes amid a surge of activity in the North Sea. Firms are investing record sums developing new oil and gas assets with the aim of cashing in on strong demand for energy around the world.

Michael Fallon, Minister of State for Energy, welcomed the proposed investment in Catcher, which he said would generate lots of work for services firms in the UK.

He said: "The Catcher area ­development shows that there continues to be an extraordinary level of interest in North Sea oil and gas, which is excellent news for industry and for the whole of the UK. The project represents over £1bn of investment and almost all of the expertise and equipment needed for this development is being supplied by British companies right across the country."

The UK Government confirmed yesterday that the new oil and gas regulator that will be established in response to the recommendation of the recent Wood Report will be based in Aberdeen.

While Cairn noted the granting of approval for Catcher in a brief statement, the decision was likely the cause of celebration at the firm. Cairn has suffered some reverses with the drill bit in recent month.

After achieving renown for making huge finds in India, Cairn has followed a strategy under Mr Thomson that involves combining potentially transformational exploration in frontier areas like offshore Morocco with lower risk development activity in the North Sea.

Cairn acquired a big North Sea portfolio by acquiring Nautical Petroleum and Agora in 2012, for around £700m in total. The firms had stakes in big undeveloped finds that Cairn was confident could be brought onstream and would then generate cash for years.

It expected to use the cash generated from production to help fund work elsewhere.

The company has a stake in the £4bn Kraken heavy oil field off Shetland, cleared for development by the UK Government in November.

Under Mr Thomson's lead Cairn has acquired interests in countries ranging from Senegal to Ireland to add to its existing positions off Greenland.

It has yet to make a commercial find in any of the frontier areas it has moved into

The company has drilled two wells off Morocco in recent months. Speaking after the company's recent general meeting, Mr Thomson said it was too soon to write the area off. Sir Bill Gammell, the former Scotland rugby international who founded Cairn, told the meeting exploration work is a marathon not a sprint.

Catcher was discovered in 2010 by Premier Oil, which has a 50 per cent stake in the field. The London-based oil and gas firm has a big North Sea business. As the operator of Catcher, Premier will lead on the development.

Cairn has estimated its share of the costs of Catcher at $580m (£345m).

Hungary's MOL acquired a 20 per cent stake in Catcher in December when it bought it from Wintershall.