The 40-year-old building, which attracts thousands of birdwatchers and other visitors from all over the world, needs to invest in new premises in order to retain and expand its activities.
The Fair Isle Bird Observatory Trust (FIBOT) began raising funds last year and hopes to be able to start work on site in the next few weeks, if other major funders come through.
Fair Isle Bird Observatory is an internationally renowned centre for researching migratory birds and sea birds, and is used by several universities to carry out important scientific studies.
The building also plays a key role in the Fair Isle community, helping to boost the local economy by attracting tourists. It underpins the local shop and the lifeline air and ferry services for the 70 island residents.
The existing building supports two full time jobs and seven seasonal posts, but the Trust is confident that its ambitious development proposals could provide even more employment opportunities.
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It will create around seven jobs during the one year construction phase, and a further two long term posts could be secured through the extra visitor spend on the island.
HIE approved backing for the project, recognising the potential that improved facilities for scientific research and visitor accommodation will have on Fair Isle's future welfare.
HIE area manager Stuart Robertson said: "Not only does Fair Isle Bird Observatory play a key role in keeping this fragile community viable, it plays an important part in Shetland's tourism industry as a whole. Our assistance fits with our policy of supporting social enterprises which show growth ambitions. The observatory's plans will extend the visitor season, raise the quality of experience and widen the appeal of the area to general tourists as well as to its bird-watching customer base."
The agency's head of strengthening communities in Shetland, Katrina Wiseman, added: "It is very important that remote communities like Fair Isle are given the opportunity to sustain themselves, and without the observatory this would be extremely difficult.
"We wish FIBOT every success with the rest of their fund raising efforts and hope that with our help the first brick can be laid in the very near future."
FIBO warden Deryk Shaw said that the trust was delighted to receive the grant from HIE, which would go a long way towards helping them raise the rest of the £4m.
"We spent a year looking into the feasibility of renovating it, but realised the most cost effective solution was to build anew," he said.
Andrew Wilson Contractors and Synergie Scotland have been awarded the contract to build the new observatory, which awaits planning permission.
Funding has already been awarded by Shetland Islands Council (£1.15m). FIBOT itself has invested £150,000 of its own money and raised almost £100,000 through its ongoing appeal.
(GK/JM)
