Chancellor Rishi Sunak announced funding for the development of the project to the next stage of development, which includes upgrades to junctions and a major renewal of the road bridge over the River Arun.
In the summer West Sussex County Council consulted on major investment in the A259 corridor, with the aim of easing congestion, making journeys safer and more reliable between the two towns.
A list of initial suggestions had been whittled down, focusing on improving six main junctions between the A259 B2132 Yapton Road junction, known as Comet Corner, and the A259/A284 Wick Roundabout.
The Department for Transport will now make an £849,000 contribution towards the cost of developing an outline business case for the scheme.
Joy Dennis, county council cabinet member for highways and transport, said: “This funding award is very welcome news and will help us to develop the business case for the scheme.
“If it goes ahead, the project will improve safety and journey times through improvements at key junctions - including bus priority and enhanced provision for cycling and walking on the A259 between Bognor Regis and Littlehampton.
“Planned residential and employment developments in Arun will put further pressure on the busy A259: the scheme would help ease congestion and support planned development in the area.
“It’s only right to point out that the scheme is still at an early stage, construction is not guaranteed and would be several years away - but this funding is a significant step forward.”