British Steel has secured a new five-year, £500m long-term supply contract with Network Rail.

The agreement – which has an option to extend for a further three years – means British Steel retains its position as principal supplier to the organisation which operates and maintains Britain’s rail infrastructure.

British Steel said the contract award was a “ringing endorsement of UK workers and British industry”.

All the rails for this new contract will be manufactured at British Steel’s Scunthorpe steelworks where most of the track laid in the UK is made.

The news comes just two months after the government took emergency action to save the Scunthorpe plant from closure.

A bill was voted on by MPs on 12 April to ensure continuity of production at the Scunthorpe site – avoiding the danger and cost of allowing it to stop. Funding for the site will come from the government’s £2.5bn steel fund, to help rebuild the industry over the next five years.

The steel maker will produce between 70,000 and 80,000 tonnes of rail a year – enough to stretch between London and Edinburgh.

British Steel’s commercial director for rail, Craig Harvey, said: “We are exceptionally proud to be extending our long-term strategic partnership with Network Rail with an agreement demonstrating British Steel’s importance to the UK’s economy and infrastructure.

“The contract is a ringing endorsement of UK workers and British industry, underpinning the vital role we play in ensuring millions of passengers and freight operators enjoy safe, enjoyable, and timely journeys on Britain’s railways.”

Employees at British Steel’s site in Scunthorpe have been supplying Network Rail with track for more than 20 years, and in the last decade alone they have manufactured more than a million tonnes of rail for the UK’s network operator.

The rails in the new agreement will largely be used for maintenance and renewals.

Transport secretary, Heidi Alexander, said: “This landmark contract truly transforms the outlook for British Steel and its dedicated workforce in Scunthorpe, building on its decades-long partnership with Network Rail to produce rail for Britain’s railways.

“After taking urgent action to step in and save these historic blast furnaces from closure, we’ve now helped secure their long-term future by backing British Steel with meaningful Government contracts, protecting thousands of skilled manufacturing jobs in the process.

“This crucial investment in our railway infrastructure shows we are delivering on our Plan for Change commitment to raise living standards in every part of the UK and ensure economic growth is felt by working people in our proud industrial heartlands.”

Business secretary, Jonathan Reynolds, said the deal was “great news for British Steel” and a “vote of confidence in the UK’s expertise in steelmaking, which will support thousands of skilled jobs for years to come”.

Last year British Steel opened a £10m rail stocking facility at its Scunthorpe headquarters. The investment is part of British Steel’s strategy to support the supply of rails to Network Rail, ensuring there is stock ready, as and when required, for its supply chain.

This latest Network Rail contract will start on 1 July, providing the company with 80% of its rail needs and builds on the government’s £2.5bn steel fund established to revitalise UK steel production over the next five years.

It forms part of Network Rail’s rail supply contracts for the provision of almost 450,000 tonnes of rail for the next five years.

To ensure security of supply, Network Rail is set to award smaller contracts to some European manufacturers, who will supply specialist rail products alongside British Steel.

A further 80,000 to 90,000 tonnes will be provided by other European manufacturers, with deals expected to be announced shortly.

Network Rail’s group director for railway business services, Clive Berrington, said: “British Steel remains extremely competitive in the provision of rail and we are delighted that they will remain our main supplier in the years ahead.”