Network Rail will shortly sign a £59m contract to convert the Cambrian line, from Shrewsbury to Aberystwyth and Pwllheli from traditional traffic light signals to the European Rail Traffic Management System.

All 12 trackside signals will be removed and replaced by a digital radio link with sensors between the rails telling each train exactly how far ahead from the next train it is. When the system goes live in December 2008, the time and distance needed to safely separate each train will be significantly reduced.

Although the Cambrian line has been selected for the trial because it forms a self-contained part of the rail network, the technology will eventually be applied to highly congested routes to allow more trains to operate.

At present, lines are divided into fixed 'blocks', entry to which is controlled by signals. A train has to wait for the service in front to leave a block before receiving a green light to enter it. The ERTMS Level 2 system planned for the UK will create a greater number of shorter blocks by linking radio equipment on trains with trackside sensors.

On the East Coast Main Line, the current block system means that the minimum gap between 125mph trains is three minutes. However, with ERTMS this could be reduced to two and a half minutes, allowing an extra four trains an hour to be timetabled. The safe time gap could be further reduced as successive upgrades of the technology are rolled out, allowing even more trains to run.

Unlike the radio-based, moving block signalling system planned for the West Coast Main Line when Britain's railways were privatised, which was subsequently found to be too difficult and expensive to implement, ERTMS Level 2 is a proven technology. The system has already been introduced by Alstom on the high-speed line between Rome and Naples, where trains run at 186mph without any signals to separate them.

If a driver makes an emergency stop the change of speed will be communicated instantly to the train behind and the brakes will automatically engage. As well as offering improvements in capacity and safety, it also removes the need for maintenance of signalling equipment. The technology also has the potential to allow trains to operate without drivers in the future.

Simon Kirby, Network Rail’s director of major projects, said a review of ERTMS next month (December) would decide how to introduce it elsewhere. "Clearly we will go for a more complex line [than the Cambrian route] where there is more need to improve capacity for freight and passengers."

Network Rail is expected to announce options for equipping further lines in January.

The system will also remove the small remaining risk of drivers running past red lights and hitting another train, the cause of seven deaths at Southall, Middlesex, in 1997 and 31 at Ladbroke Grove, West London, in 1999. The TPWS automatic braking system has been installed on most of the network but is fully effective only at speeds below 75mph (120kmph).