A state panel has approved $25 million in federal money for a planned MBTA Orange Line stop in Somerville’s Assembly Square, which is home to this retail strip at the former Assembly Square Mall site.

A new MBTA Orange Line stop at Assembly Square – the dream of many Somerville residents – moved a giant step closer to reality recently when a state panel approved $25 million for the station.

“An Orange Line station is critical to unlocking the hidden potential of East Somerville,” said Somerville Mayor Joseph Curtatone. “This will be the model for smart-growth and transit-oriented development.”

An MBTA station on the Orange Line has been a priority for two Somerville mayors and the Mystic View Task Force, a well-organized community group. In a city where nearly every square foot of space is developed, Mystic View has pushed for a T stop surrounded by a mixed-use urban village on the 140-acre parcel located between Wellington Circle and Sullivan Square, which is bordered by the Mystic River, Interstate 93 and Charlestown.

Dennis DiZoglio, deputy general manager of the MBTA and former chairman of the Boston Metropolitan Planning Organization – the board that approved the federal money for the Orange Line – said the initial authorization in the federal transportation bill is a huge leap forward for the project. The money was placed in the new bill by Rep. Michael Capuano, D-Mass.

“The T lacks money to create new stations,” DiZoglio said. “If it’s to become a reality, congressional support is crucial.”

Assembly Square, the area that Mystic View has christened Somerville’s “Last Frontier,” is the site of the Ford Motor Co.’s former assembly plant where the Edsel was manufactured. By the 1980s, the abandoned site was transformed into the Assembly Square Mall.

The parcel has been steeped in controversy since the mall closed. Newton-based National Development and Boston-based Taurus New England Investments Corp. bought the mall for $18.8 million in 1998. They planned to raze the shopping center and build a collection of big-box stores including a Home Depot. Later, Swedish-based IKEA Furniture bought an adjacent 17-acre parcel along the waterfront and proposed construction of a 325,000-square-foot store.

Battle lines were quickly drawn. Activists voiced opposition to football field-sized stores and a sea of surface parking lots, while developers and the city wanted retail as soon as possible.

In dozens of public meetings, Mystic View members said more giant stores would exacerbate already congested roads and further pollute the air. They argued for an overall plan that included offices and research-and-development space, as well as some housing and smaller retail so the city would generate more tax revenues and the uses would complement the riverfront.

Each side stood their ground and both projects wound up in court. In 2004, Home Depot ended its five-year battle to build a 173,435-square-foot store and garden center at the failed mall and a spokesman blamed “an intransigent opposition that was repulsed by the idea of compromise.”

Mystic View went on to win a series of lawsuits against the mall owners and IKEA. The suits argued successfully that the city failed to adhere to zoning regulations and environmental reviews, although several issues remain unresolved.

Despite the court rulings, a collection of retailers including TJ Maxx, Bed Bath & Beyond, Staples, Kmart, Sports Authority, ACMoore and Christmas Tree Shops opened last year at the site of the former mall, which since has found a new life of sorts as a strip mall.

‘A Common Vision’
The mall and an adjacent 10-acre parcel were sold in 2005 to Federal Realty Investment Trust, a Maryland-based real estate investment trust, for $64 million.

Donald Briggs, Federal’s senior vice president of development, declined to be interviewed. But the city of Somerville’s Web site says Federal’s proposal would include 1.3 million of office space, 2,646 housing units, a hotel, just over an acre of open space and add 603,200 square feet of retail, bringing a total of 1.5 million square feet of retail to the area.

Wigton Zamore, a Mystic View founding member, said Federal’s retail and housing component is excessive while its office and research-and-development proposal is too small. The task force has lobbied for denser development including more than 5 million square feet of office and R&D space, 30 acres of open space and possibly more retail, he said.

“The question is, which [uses of land] at Assembly Square would benefit the city the most?” said Zamore. “Somerville has the third-highest state aid per acre, so more large retail and housing are not going to get us out of the fiscal hole we’re in. They won’t provide a large number of jobs or a large tax base.”

The task force could support a million square feet of total retail, according to Zamore, “but if and only if there is a transportation plan that shifts as many trips as possible to public transportation like Kendall Square [in Cambridge]. We must be convinced that the retail will not cripple our roads and pollute our air.”

Only three malls in the Bay State total 1.5 million square feet or larger, Zamore said, including South Shore Plaza in Braintree, North Shore Plaza in Peabody and the Holyoke Mall, places where the population and traffic are less than the area around Assembly Square.

Somerville Alderman at Large William White questioned whether Federal could deliver on a mixed-use urban village if IKEA builds a store and the T stop remains a dream. He also said the federal money is about half of what is needed to build the station and improve the infrastructure around Assembly Square.

“Traffic would be at capacity if IKEA is built without the T stop,” he said. “And keep in mind that we will need another $25 million from somewhere to make the Orange Line station a reality. The money is not in the bank yet to put a shovel in the ground.”

For now, the parties are at an impasse. Curtatone, the Somerville mayor, said representatives from Federal, IKEA and Mystic View are in negotiations. He said he is hoping they will agree on a united vision for Assembly Square and get the matter out of court.

Zamore declined to comment on the status of the negotiations and others close to the talks did not return repeated calls.

Earlier this year, IKEA and Federal agreed in principle to a land swap that would take the furniture superstore off the waterfront – as Mystic View has called for – and place it on a parcel away from the water. If both sides sign off on a swap and the ongoing negotiations are successful, it could end the litigation.

“Things will be a lot better if we can figure out a common vision,” Zamore said. “We understand the parties need to come up with a compromise and it will catapult this forward to getting done.”

While the T station could take another five years until construction begins, Curtatone said he is confident that the disputes will be resolved soon and the project will be put on the fast track.

“We’ve come a long way and there’s still a long way to go. But the pieces are starting to line up,” said Curtatone. “It’s like a 1,000-piece jigsaw puzzle with 500 pieces to go.”