It is one of the little- known gems in Bath's sparkling crown of historic buildings. Now a stunning Jacobean courtyard that currently lies hidden in the heart of the city centre is to be revealed as part of a major £2-million restoration and development project.

The Grade II-listed building at 7-9 Broad Street was once home to Bath's main post office and is the spot from which the first Penny Black stamp was sent in 1840.

And an original plaque on a section of the building, which more recently housed the city's postal museum, suggests the building was erected in 1640.

This means it predates the building usually touted as Bath's oldest, the famous Sally Lunn's House tea rooms, by 40 years.

Within the Georgian facade lie the remains of the original dwelling, and Bath developer the Trevor Osborne Group has pledged to "sympathetically restore" the building, while creating a three-storey courtyard house.

The project, which is being undertaken in conjunction with Bath and North East Somerset Council, will result in three new ground and basement-level shops and nine flats, created on three floors above the shops.

The new shops will be let by the council as part of a scheme that will also see the opening up of the Jacobean courtyard behind the existing facade of the premises. Work is due to start in the spring and is likely to last 18 months.

It follows a complex series of negotiations leading to the signing of a deal between the authority and developers.

A spokesman for the Osborne Group said: "All of the units, upon completion, will represent excellent value for money, based on the development's excellent location and the quality of conversion that will be carried out.

"Most of the units will be marketed at first-time buyers or young professional purchasers within the city."

The new apartments will be priced at a level to allow buyers to take advantage of the Government's stamp duty cuts.

Bath and North East Somerset cabinet member for resources Malcolm Hanney said: "This type of development arrangement with the private sector is indicative of the proactive approach that the council has in the use of its property assets, and the project is particularly welcome during the current financial climate."

Osborne Group founder Trevor Osborne said the firm was pleased to have reached agreement with the council to undertake the restoration project.

Mr Osborne said: "The shops, providing valuable income for the council, will be a welcome addition to the new Milsom Place development and the new apartments will provide contemporary living in the heart of historic Bath."

Bath property agent King Sturge advised the council during the transaction.

City partner and retail property expert Mike McElhinney said: "This was a complex and sensitive negotiation conducted over many months in hardening market conditions. Bringing the matter to a successful conclusion demonstrated the determination of both council and The Osborne Group to see a good outcome for this important group of buildings in Broad Street."