Work has started on an ambitious £12m project to restore the royal palace at Stirling Castle following the appointment of a contractor.

Historic Scotland has selected Morris & Spottiswood to carry out the restoration, which will involve refurbishment of the former royal lodgings to how they would have appeared during the mid-16th century.

Chris Watkins, head of Historic Scotland's major projects team, said: "We have already completed a great deal of important conservation work at Stirling Castle, and this last phase, to present the interior of James V's magnificant palace as it might have appeared in the mid-16th century is the most ambitious."

The Stirling Palace Project, which was announced in June, is expected to be completed in 2011. The Scottish Government has contributed £3m towards the project, while Historic Scotland has invested the remaining £9m.

Work will be carried out in three stages, the first of which involves the restoration of the main palace and Old Chapel. The first stage, which will be completed in January 2010, will also include the Palace Vaults, where an interpretative display of the court of James V will be created.

Stage Two of the project will see works carried out in the King's Old Building. The third stage will involve the fitting, painting and furnishing of the palace and Renaissance Gallery, which will house the Stirling Heads - regarded as Scotland's other crown jewels.

The castle's location means a number of challenges for the restoration process. Business unit head of Morris and Spottiswood, Tony Ward, said: "This is a site of great historical importance and therefore a very prestigious project to be involved in. In addition, there are several challenges which make it a very interesting project.

"We are investigating, for example, using a helicopter for movement of materials because the entrance to the castle doesn't allow for large heavy vehicles or cranes. The scaffolding will need to be specially designed because of the crag-top location of the castle."