City council cabinet members this week approved the principle of selling council-owned Aalborg Square to HM Courts Service (HMCS) – possibly at a knock-down price.

But they said the decision should be subject to a further report into an alternative of building the extension on the car park at the back of the Magistrates Court.

HMCS wants to move the Crown Court from rooms at Lancaster Castle, which it leases from Lancashire County Council, and the County Court from Mitre House in Church Street, which it leases from LS Trillium.

Moving the Crown Court would free up space in the Castle – where court cases have been held since 1166 – and it could be used as a museum to boost the city's tourism.

The report considered by councillors says that guided tours of the castle cannot take place when court is in session, and that tours often have to be suspended at short notice.

It adds: "The potential impact on visitor numbers has not been quantified at this stage, but it has the potential to become a highly significant visitor attraction that could raise Lancaster's profile."

The potential boost to the city economy could allow HMCS to buy the land from the council at less than market value under financial rules.

It has already lodged a bid with the council, but councillors agreed that a district valuer should be appointed to decide the site's value.

Building on Aalborg Square would be a departure from planning policy because the site is designated by the council as urban green space.

The report admits that the design of the extension would be 'particularly important' because there are listed buildings nearby.

An HMCS spokesman said: "HMCS regularly reviews its use of court buildings to ensure we provide the best facilities for court users, especially vulnerable victims and witnesses.

"We are at a very early stage in looking at the possibility of locating Lancaster's Crown, County and Magistrates Courts within the existing Magistrates Court.

"No decisions have been made."