The Grade A listed Rothesay Pavilion, once a hub for Scots holidaymakers, could be transformed into a cultural centre and visitor attraction after the HLF indicated it would be willing to put up the funding for the renovation project.
The endorsement, which includes development funding of £103,100, means the local project can now progress with further fundraising, development of a creative strategy and setting up a new charity that will run the site when the project is complete.
Councillor Robert MacIntyre, the chair of the Rothesay CHORD Project Board, said: "This good news from the Heritage Lottery Fund means we have now identified more than 50% of the funding required to support this important project for Rothesay.
"We can now look forward to real progress in the coming two years and work is due to begin at the end of 2014."
Colin McLean, head of the HLF in Scotland, said: "This wonderful 1930s' pavilion is evocative of Rothesay's heyday as a thriving tourist resort.
"Its resurgence as a cultural venue for the community would not only save an important piece of the Bute's heritage but would have a positive impact on the regeneration of the town as a whole.
"HLF is delighted to give its support at this stage and we look forward to seeing how the plans develop."