London's iconic Piccadilly Circus is set to undergo a major £14m makeover in a bid to provide more space for pedestrians under new proposals approved by Westminster City Council (WCC).

More than 1km (0.6 miles) of "oppressive" railings installed in 1963 are set to be removed as part of the scheme, which follows the success of a Japanese-style diagonal pedestrian crossing created at Oxford Circus. The site's landmark Eros statue is set to become a focal point for pedestrians under the proposals, which is also intended to open up an important gateway to St James' Park and Horse Guards Parade during the 2012 Olympics.

Two-way traffic is to be reintroduced from Piccadilly Circus along Piccadilly, St James' Street and Pall Mall for the first time in half a century in a bid to relieve congestion, while a central island will be built along Piccadilly and Pall Mall to provide more opportunities for pedestrians to cross. Pall Mall's pelican crossing by St James' Square will be replaced with a zebra crossing, with the route from Green Park tube station along Piccadilly, through St James' Street and up to Haymarket are also earmarked for improvements.

Engineering consultancy Atkins has been commissioned to work on designs for the Piccadilly Square project, with WCC waiting to see whether Transport for London (TfL) will provide £7m towards the proposals as part of its Major Schemes initiative. If the TfL funding bid is successful, WCC will provide the remaining £7m along with the Crown Estate. Department store and restaurant operator Fortnum and Mason will contribute additional funds along with the St James' Conservation Area Trust.

WCC leader Colin Barrow said: "In 2012 our capital will capture the world's attention and our plans to transform Piccadilly Circus and the surrounding area will ensure visitors are as impressed by the city's streets and all they have to offer, as they are with the sporting talent many will have travelled so far to see." David Shaw, head of Regent Street portfolio at the Crown Estate, added: "This innovative scheme will deliver major improvements for residents, visitors and business alike ahead of the Olympics."