The funding comes by way of the Ontario Media Development Corporation, an agency of the Ontario Ministry of Culture that works to stimulate economic development opportunities for the province's cultural media industries. The ODMC also announced its intention to invest in fellow Ontario-based developer Digital Extremes, which produced the first Xbox entry in Epic's Unreal Championship series.

The prototype game is said to be an action-based psychological thriller, tentatively scheduled for completion in 2010 for all next-gen systems, but no further details were mentioned. The prototype may be the next game in the Too Human (X360) trilogy, the long-awaited sequel to psychological thriller Eternal Darkness: Sanity's Requiem (GCN), or the company's unannounced collaborative project with Sega.

Silicon Knights announced last month that it intends to expand operations at its Niagara, Ontario headquarters, increasing its workforce by 80 employees. Similar to OMDC's investment, Silicon Knights' expansion was also partially subsidized by the government via the nGen initiative, which is aimed at revitalizing the Niagara economy with $245,000 in startup funds from the Ministry of Culture.

The recent influx of government funding may be a result of Silicon Knights' suit against technology developer Epic and the subpoenas issued to its licensees. At the time, many speculated the action would result in Silicon Knights being blacklisted by other studios and publishers.