In a surprise move, the Ontario government is injecting $23 million into Starz Animation to create and preserve jobs at the Toronto studio, which is owned by California-based Starz, a subsidiary of U.S. giant Liberty Media.

Ontario Premier Dalton McGuinty made the announcement Tuesday at the 3D animation house and was joined by musician Sir Elton John and his Toronto-born partner David Furnish. The pair, through their Rocket Pictures shingle (Spectacle: Elvis Costello with…), are producers on the CG musical Gnomeo and Juliet, for which Starz is creating the characters.

The money stems from the government’s $1.1 billion Next Generation of Jobs Fund, which focuses on investing in the digital media sector. McGuinty told the press conference the grant aims to help Starz make Ontario a ‘hotbed of innovation.’

‘Our message to innovative companies is clear, if you’ve got a project that will grow your business and create jobs, let’s work together and make it happen. We want you in Ontario,’ he said. Starz CEO Robert Clasen and studio head David Steinberg were also on hand.

John said when they finally got the go-ahead for Gnomeo and Juliet, which they’ve seen ‘die and come alive again,’ the search was on for a studio that could animate the movie — a spoof of the Shakespeare tale told through the eyes of dueling garden gnome families.

‘We looked at quite a few… [but] were overwhelmingly blown away by the facilities at Starz, and it was a no-brainer where we would come and do this,’ said John.

Gnomeo and Juliet is directed by Kelly Asbury (Shrek 2) and features the voices of James McAvoy (Atonement) and Emily Blunt (The Devil Wears Prada). The film will present music by John and his songwriting partner Bernie Taupin. It will be released in 2011 via Miramax Films.

Steinberg said the company plans to use some of the money to feed the studio with up-and-coming talent from animation programs at Ontario schools including Sheridan and Seneca College.

‘We are [also] reaching across the border and finding Canadian artists who, some years ago left to find opportunities abroad at major studios, and are now returning,’ he said. Starz currently employs 220 people in Toronto.

The studio is also currently working on the Tim Burton project 9, which will be released in September through Universal and Focus Features. Among its other credits are the baseball-themed animation Everyone’s Hero, and the bestselling VeggieTales DVD releases.