One of Scotland's wealthiest businessmen pledged yesterday to donate up to £50million to create a new “heart” in the centre of Aberdeen. Sir Ian Wood, the North Sea oil tycoon, is backing a plan to build a public square that he said would transform the city.

Local and national politicians gave his announcement strong support, but there was concern that the project would jeopardise a leading regional arts centre. Peacock Visual Arts said that the scheme would fatally damage its plans to move into a new £13million premises.

Aberdeen, known as the Granite City for its austere grey buildings, has long suffered from an image problem. It enjoys a scenic location on the North Sea coast, but the city centre is often regarded as dreary.

All that could change now that Sir Ian has offered his financial support for a new square on the site of Union Terrace Gardens. Sir Ian, who is chairman of one of Britain's biggest energy companies, the Wood Group, outlined his plans at His Majesty's Theatre in Aberdeen in front of an audience that included Alex Salmond, the Scottish First Minister. He said that he wanted to create a “cross between a grand Italian piazza and a mini Central Park” in the little-used gardens.

“In my young days, Union Street was both the main retail centre and the heart - a street which ranked among the best in Scotland,” he said. “Sadly, it is now a shadow of its former glory and, with some exceptions, lacks any real distinction and quality. The vision is to develop a new street-level city centre square, a transformational project aimed at putting the heart back into Aberdeen.”

A feasibility study, funded by Scottish Enterprise, will be conducted to determine the cost and scale of the project. A decision is expected to be taken by the end of next year about whether it will proceed. If approved, it is expected to be completed in another four to five years.

Mr Salmond said: “We often speak of Aberdeen as Europe's oil and gas capital, but it's not only that. Aberdeen is a world-class energy centre, perhaps second only to Houston in the world. It is therefore important, indeed vital, that the city has a centre, a heart, of the calibre which fits that international status.”

Kate Dean, the leader of Aberdeen City Council, said: “The regeneration of Union Terrace Gardens has been considered in the past, but for the first time we now have the prospect of significant private sector financing.”

Sir Ian faces major opposition from Peacock Visual Arts, which is hoping to move into a new building on the site that he wants to develop. The organisation, the region's main contemporary arts centre, has planning permission and more than 70 per cent of the necessary funding, but it claimed yesterday that the investment would be lost if it were forced to wait for Sir Ian's plans to come to fruition.

“Our funding package is time-limited and we must use it or lose it,” the organisation said.

Times Recommends

• Milk: do we need a dairy godmother?
• DIY: the women doing it for themselves
• First double portrait of Princes unveiled