The UK government on Friday said it would provide £500 million ($621 million) to fund the production of "greener" steel at the country's biggest steelworks but that 3,000 jobs were still at risk.
The Department for Business and Trade said the money would help finance a new electric arc furnace at Tata Steel's Port Talbot plant in south Wales, safeguarding 5,000 of the more than 8,000 jobs.
Port Talbot steelworks is the UK's single biggest carbon emitter, and the government has been looking to help Indian-owned Tata Steel and British Steel, run by Chinese group Jingye, to replace dirty blast furnaces.
The Mumbai-based conglomerate had threatened to shut the giant plant unless it received state aid to help decarbonise production and cut emissions.
Business and Trade Secretary Kemi Badenoch hailed the funding as a "historic package of support" that would protect jobs and the UK steel industry, as well as help boost economic growth.
She dismissed concerns about potential job losses, insisting on a visit to the plant: "We are saving jobs which would have been lost.
"Without this investment we would probably have seen the end of steelmaking certainly in this part of the country, possibly the whole of the UK."
The government said replacing the coal-powered blast furnaces at the Port Talbot site would "reduce the UK's entire carbon emissions by around 1.5 percent".
Experts have said green hydrogen could help the massively-polluting steel industry but producing the clean energy in large enough quantities requires significant investment.
As well as climate fallout, the steel sector has seen costs soar amid surging energy prices over much of the past 18 months in the wake of Russia's invasion of Ukraine.
The £500 million is part of a £1.25-billion investment from Tata Steel, whose operation in Port Talbot also supports some 12,500 jobs in the supply chain.
The Tata Group in July announced plans for a £4-billion factory to manufacture electric car batteries, as part of UK aims to hit net-zero carbon emissions by the middle of the century.
But it warned that the plans for Port Talbot would lead to talks about a "deep potential restructuring" as the changes are implemented, prompting concern from local politicians and unions.
The head of the TUC umbrella body of trade unions, Paul Nowak, said the uncertainty over jobs at the plant was "the opposite of a just transition".
"Ministers must press pause and urgently get around the table with unions" to avoid compulsory redundancies, he said.
Unite general secretary Sharon Graham said the plans were "disgraceful, short-sighted and lack ambition".
"Unite will be fighting tooth and nail not only to save these jobs but to create more jobs in steel."