Then Merseytravel's lawyers will apply for a judicial review with the aim of getting the case heard in court by the end of February.
If the judge decides to compel the Government to relinquish the pot of money, the tram scheme could be back on track by March 31.
Yesterday, the Passenger Transport Authority voted unanimously in favour of launching the legal battle, which is expected to cost £300,000.
Merseytravel legal adviser Nick Painter said there was an "arguable" case to take legal action against the Government.
The action will be taken on the grounds that the Government made unreasonable demands in asking Liverpool and Knowsley councils to write a blank cheque to cover any possible cost over-runs on the project, beyond the £24m contingency they did agreed to.
Lawyers will also say the Government raised expectations that the scheme would go ahead by handing over a £4.2m down payment in April, well above the expected amount of £800,000.
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