Network Rail says its improvements to stations, lines and signalling equipment could double the rail capacity of the region by 2015.
Passenger demand in Cardiff and the valleys is increasing at 8% on average each year, it said.
Consumer group Passenger Focus hailed the plan as good news for rail travellers in Wales.
Network Rail, which owns and operates Britain's rail infrastructure, predicted that the number of passengers travelling in Cardiff and the valleys would exceed 12m per year by the end of 2015.
It said some 900 trains already travelled daily through the Cardiff area, but the railway needed more capacity by the end of the decade.
The changes would remove the rail bottleneck on the Cardiff city line, said Network Rail, allowing an extra four trains an hour to run through the area.Continue reading the main story
This initiative will help the railway manage the increasing numbers of passengers longer-term”End Quote Anthony Smith Passenger Focus This would allow for more and longer trains to run on the valley lines, with 600 more seats during rush hours.
More freight trains would run in Cardiff, boosting the business sector, and more robust and efficient signalling equipment would improve reliability of services.
Mike Gallop of Network Rail said the plan would help unlock the untapped potential of the area, meeting a growing demand and paving the way for electrification.
"Wales relies on rail - a reliable and robust railway forms a key pillar for a healthy economy and this scheme will help Wales continue to thrive," he said.Continue reading the main story CARDIFF:Extra platform at Cardiff CentralRefurbished southern entrance at Cardiff CentralTwo extra platforms at Queen StreetExtra bay platform at Queen Street for Cardiff Bay shuttle serviceRefurbished Queen Street station with new entranceDoubling of the Treforest Curve (Cardiff West Junction to Ninian Park) to enable improved frequency of trains onto/from the City linesBARRY:Extra platform at Barry stationUpgraded freight line at Cogan Junction to enable passenger trainsRHYMNEY VALLEY:Extra platform and passing loop at Tir-philExtra platform at CaerphillyPONTYPRIDD:Extra platform and passing loop at Pontypridd Source: Network RailThe main engineering work will begin by autumn 2011 and is planned to be completed within three years and in time for new trains to be introduced to the valleys by 2018.
Network Rail is currently tendering for different contractors, including signalling, buildings and track, to help deliver the scheme.
Anthony Smith, Passenger Focus chief executive, welcomed the investment.
"This is a good news story for passengers travelling in Wales," he said.
"Passengers tell us that frequent services and getting a seat are among their top priorities for improvement.
"Forecasts show that the railway is getting busier and this initiative will help the railway manage the increasing numbers of passengers longer-term."
Plans to electrify the Great Western main line between Cardiff and London were announced by the UK government last month.
In February proposals were published for the Cardiff Metro, a system of electrified rail and tram services providing a faster link between Cardiff, Newport and the valleys.
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