The transport ministers of the Baltic states have signed an agreement to set up a joint venture to implement the estimated €3.6bn Rail Baltica II project.
Named RB Rail, the joint venture will build a standard-gauge high-speed line that will connect the region with Poland.
Earlier this month, the Baltic states, namely Latvia, Lithuania and Estonia, agreed to sign the agreement after years of waiting.
Latvia Transport Minister Anrijs Matiss said: "I want to emphasise that the greatest beneficiaries of this project will be the Latvian, Lithuanian and Estonian citizens, who will be able to easily travel to any Baltic country and other destinations in Europe in the near future.
"This important transport line will serve as a bridge between Europe and the Baltic states and contribute to the economic development."
The joint venture will be responsible for design, construction and marketing of the railway line.
The new 728km-long line is expected enable trains to run at a maximum speed of 240km/h.
The journey time on the route of Tallinn to the Lithuanian-Polish border is expected to be approximately four hours.
Within this project, all the three states will have 33.33% share and each of them will provide €650,000 in startup capital.
The Rail Baltica I project, which includes a line from the Polish-Lithuanian border to a new intermodal terminal at Kaunas, is currently under construction and is expected to be completed in 2015.