The technique uses a silk 'bridge' placed over the injury site to act as a scaffold encouraging new nerves to grow. Electrical and chemical stimulation are also applied to encourage nerve growth.
Scientists at the Nerve Repair Group at Aberdeen University have begun a long-term project to explore the use of the method, which they hope could also be used to help patients who have suffered a brain injury or stroke.
Spinal cord injury is commonly caused by falls, road accidents, medical conditions and injuries from a range of sports.
Scottish Rugby is helping fund the project, and donations have being received from Scots businessman Willie Watt and an anonymous donor with a spinal cord injury.
In recent years a number of young Scots rugby players have suffered spinal cord injuries on the pitch. Former Scotland team star Thom Evans was forced to retire in 2010 after seriously damaging two vertebrae in a collision during a Six Nations match between Wales and Scotland at Cardiff's Millennium Stadium.
He was stretchered off the field in a neck brace and was lucky to avoid permanent paralysis.
A year earlier a 14-year-old pupil at Stewart's Melville college, in Edinburgh, suffered a serious neck injury during a match, while in 2008 a 17-year-old from Merchiston Castle, also in Edinburgh, was paralysed from the neck down after his spine was damaged when a scrum collapsed. In the same year, a pupil from St Aloysius' College in Glasgow and Ciaran Pryce, 15, a pupil at Cathkin High in Cambuslang were paralysed during school rugby matches.
Rules introduced later, including a ban on allowing boys younger than 16 to compete in under-18s games, halted a rise in the number of spinal injuries among schoolboy rugby players.
Dr James Robson, Scottish Rugby's chief medical officer, welcomed the announcement yesterday.
He said: "Severe injury to the spinal cord remains, thankfully, a rare occurrence. If we can help scientists in their drive to regenerate damaged nerves then it will represent a considerable breakthrough."
Professor Colin McCaig, head of the School of Medical Sciences at Aberdeen University, added: "We are delighted that Scottish Rugby is among those helping to support our research which is innovative and ambitious - although still at the early stages.
"Our ultimate goal is to bring new regenerative strategies for spinal record repair to the clinic."
Around 2.5 million people around the world live with the consequences of spinal cord injury with about 40,000 of those in the UK. More than half are boys and young men aged 15 to 30.
Less than 1% of spinal cord injuries show spontaneous recovery. So far there are no established regenerative therapies for spinal cord injury.
Spinal cord injury leads to movement and sensory deficits below the point of injury. This is because nerve cell death and tissue trauma prevent electrical signals from crossing the damaged area.
After the initial injury a fluid-filled cyst surrounded by a fibrous scar forms, making a powerful physical barrier that prevents nerve regrowth across the injury site. In addition, cells in the spinal cord react to injury by producing chemicals near the scar that act as 'stop growth' signals, further preventing nerve regrowth. It is one of the reasons why patients with a serious spinal injury can end up with total paralysis.