The foundations have been laid for a new art gallery on one of Edinburgh's most notable landmarks, Calton Hill.

The Observatory on Calton Hill, designed by William Henry Playfair, will become the new home of the Collective Gallery and a space for national and international artists.

The £4m restoration project will include conservation of the Observatory’s original 19th century William Henry Playfair designs, its original telescopes and astronomical instruments and its grounds; the creation of a subterranean gallery, and the building of a new restaurant.

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The art scene in the capital has been dominated in recent days by the closure of Inverleith House at the Royal Botanic Garden as a contemporary art space, but the Collective’s new contemporary art space is scheduled for completion by the end of 2017.

The Collective was founded in 1984 and has worked with artists such as Martin Boyce, Jeremy Deller, Claire Barclay, Moyna Flannigan and Callum Innes.

The Collective moved to Calton Hill in 2013, and became "custodians" of the City Observatory complex, which was in a state of serious disrepair and on the Buildings at Risk Register.

The gallery has received funding from the Heritage Lottery Fund, the City of Edinburgh Council, Creative Scotland and Edinburgh World Heritage.

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Kate Gray, director of the Collective said: "We are thrilled to be at this point in the project and are now able to see our vision becoming a reality.

"This innovative project is the culmination of five years of work and would not be possible without the huge amount of support from artists, individuals and funders we have received.

"We are very excited to see our plans progress over the next year and we look forward to welcoming people to a new kind of City Observatory when we open the site freely to the public for the first time in its history."

Councillor Richard Lewis, culture convenor for the City of Edinburgh Council, said: "The redevelopment of the Old Observatory on Calton Hill could be one of the most significant cultural and heritage projects to take place in Edinburgh.

"Known as the birthplace of astronomy and timekeeping, and situated with breathtaking views in the heart of the Athens of the North, the Observatory will be reinstated to the original William Playfair designs.

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"This is a major step forward and the Council is proud to be working with Collective to realise this ambitious project. Soon, Calton Hill will once again be home to a creative hub of history, art and science for residents and visitors to enjoy."