Airport operator BAA said the cost of building a second runway at Stansted airport would be £2.7 billion, 30 per cent below previous government estimates.
BAA, which faces fierce opposition from airlines and local residents to the expansion, said the first phase of the project would cost £1.7 billion and provide additional capacity at the airport for about 15 million passengers a year by 2013.
Another one billion pounds will be needed in further phases to more than double the airport's capacity to 76 million passengers a year by 2030.
BAA said the estimates, released ahead of a three-month consultation period, were well below the government's estimate of £3.7 billion for the project.
"The good news is that we've managed to reduce the costs of this project by nearly 30 per cent, compared with the government's original estimate," BAA Chief Executive Mike Clasper said in a statement.
BAA shares were 0.6 per cent weaker at 643-1/2 pence by 8.45 a.m.
The government has backed plans for a second runway at Stansted as part of a 30-year strategy to cope with soaring demand for air travel, particularly in the country's crowded south-east. In a 2003 report, the government put the project cost at £3.9 billion, which BAA said was £3.7 billion after stripping out the cost of improved rail and road links.
The first phase of the project is due to be ready by 2013, more than a year behind the government's deadline.
Under the BAA proposal the runway will be 3,048 metres long, compared to the government's estimated 3,400 metres. It will also need less land and property than originally anticipated.
The project is strongly opposed by local residents and environment groups, while UK airlines have criticised BAA's plans to subsidise the project by charging passengers at its other London airports at Heathrow and Gatwick.
"We are not prepared to see charges rise at Heathrow and Gatwick to pay for Stansted development, and we look to BAA for reassurance on this matter," British Airways said in a statement.
BAA is also constructing a giant new fifth terminal at Heathrow Airport. The project is under budget and on schedule, though unions said construction workers would strike for two days this month over a pay dispute.
BAA, which was named as lead bidder for Budapest Airport last week, also announced that passenger traffic in November rose 2.2 per cent year-on-year to 10.4 million.