Scarborough is one of eight local authorities in the UK to be granted the "small casino" licence – the others include Luton, Swansea, Torbay and Wolverhampton.

David Archer, the council's strategic director, said in a report to cabinet: "It is the view of the Casino Project Board that despite the current economic climate, Scarborough Council will benefit from being among the first to offer a 2005 Act casino licence.

"Anecdotal evidence from the casino industry suggests that there remains enough interest in the casino application process to support this decision and that to delay the process could see casino operators making investments in areas other than Scarborough."

The application process involves two stages – the first involves a regulatory procedure to ensure the applicants are suitably qualified, fit and able to run a casino of the type intended, while the second will involve the applicants being asked to present their casino development and regeneration proposals for the authority's area.

Delegates from eight gaming industry organisations attended an open day organised by Scarborough Council last September to see what the town could offer after being awarded a licence for a second "small casino" in town by central Government.

Scarborough Council considers itself one of the favourites in the race to open a small casino.

A small casino, as defined within the Gambling Act 2005, is deemed to be one with a minimum gaming area of 750 square metres with a maximum of 80 category B gaming machines, featuring a jackpot of up to £4,000.

Mr Archer said there were risks to the council's approach, adding: "By being among the first to commence the application process the council may find itself subjected to a legal challenge should a disappointed applicant contend that the process the licensing authority has adopted is not compliant with statute or Government guidance and/or on the basis of a perceived lack of transparency in the decision making process.

"Such risk of challenge arises as a result of the combination of the legislation and processes in respect of the 2005 Act casino premises licences being new and untested, and the nature of the high value business interests that are at stake."

He added: "At all times an emphasis has been placed on minimising the risk of any potential legal challenge whilst maximising the possible regeneration benefits derived from the process.