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A community theater that would be built at the former site of an X-rated movie house in Canoga Park is one step closer to reality, a result of City Council action on Wednesday.

The council voted to apply to thS. Economic Development Administration for a $2.8-million grant to build the 500-seat Madrid Theatre at the site of the old Pussycat Theater at 21622 Sherman Way.

In April, the city filed a preliminary application with the federal agency, which approved it. Councilwoman Laura Chick, who is leading the charge to build the theater, said the action means the federal agency will probably grant the requested funds.

“This is exactly the kind of project they are likely to support,” Chick said Wednesday after the council’s vote. “It will mean economic revitalization of the area and it’s a grass-roots effort.”

On Aug. 3, the city’s Community Redevelopment Agency voted to participate in the project. The CRA will be responsible for the design and construction of the two-story theater, which could be used for dramatic productions, concerts, dance shows and film presentations.

The original Madrid opened in 1926 as a vaudeville theater and later a movie house. It eventually become the Park Pussycat Theatre, which screened X-rated movies. The building was damaged beyond repair in last year’s Northridge earthquake.

Chick said she hopes the theater, when finished, will become a catalyst for renewed economic activity in the Canoga Park downtown business district, where it is situated. The theater is expected to create 18 new jobs.

The councilwoman, whose district includes Canoga Park, said there is a need for this type of venue in the Valley.

“The Valley has changed,” she said. “We want theater. We are not chicken farmers anymore.”