Redeveloped gallery in Walthamstow, London, dedicated to Victorian artist was facing cuts and possible closure

A museum dedicated to the life and works of the Victorian designer, artist and ardent socialist William Morris has been named winner of the UK's largest arts prize.

The William Morris Gallery in Walthamstow, London, won the £100,000 Art Fund Prize for Museum of the Year, triumphing over institutions that included the Kelvingrove in Glasgow, the Baltic in Gateshead and the Hepworth in Wakefield.

It won for a redevelopment that brought a rather tired museum thrillingly back to life. At one stage the gallery was facing cuts and, it was feared, closure at the hands of the local authority, but after a community campaign Waltham Forest council became its saviours, agreeing to invest £1.5m, matching the £1.5m offered by the Heritage Lottery Fund.

The new gallery reopened in August last year and is one of the borough's jewels. Stephen Deuchar, director of The Art Fund and chair of the judges said the local campaign and the council response were to be applauded.

The local authority discovered "what they might have thought was a sleepy old museum that could be humanely put down, could in fact be revitalised and that is what has happened.

"In these difficult times for an area of London facing many other pressures, to put in £1.5m was a great and responsive act."

The renovated gallery reinterprets Morris for a 21st century audience, telling the story of his life and considerable achievements in the grand Walthamstow house he grew up in. It has space for visiting shows and will be the first venue when Jeremy Deller's current exhibition at the Venice Biennale goes on tour next year.

The refurbished gallery was setting the highest standards of curatorship, said Deuchar. "The collections are not only important but they are very beautifully presented, in terms of the physical fabric of the showcases and also the interpretation – the labels are erudite and accessible.

"There is a great curatorial coherence to the collections and that comes across in every square foot of the museum."

The architectural transformation of a fine but tricky Georgian building had been beautifully done, said Deuchar.

The prize, won in previous years by institutions big and small from the British Museum to the Lightbox in Woking, was presented by Ian Hislop at a ceremony at the V&A in London. The others on the shortlist were the Beaney in Cambridge, the Dulwich Picture Gallery, the Horniman in Forest Hill, London, the Museum of Anthropology and Archaeology in Cambridge, Preston Park Museum in Stockton and the truly tiny Narberth Museum in Pembrokeshire.

The prize was awarded in what are worrying times for the museum sector, with many local authorities cutting back on spending and museums fearing more cuts as a result of George Osborne's forthcoming spending review.

Deuchar said: "Every single visit was an enjoyable one and every museum had qualities we admired and applauded. Cumulatively we were astonished at the health of UK museums.

"For UK museums to be achieving at such a high level and simultaneously facing the withdrawal of public investments is a national tragedy. We are very keen that the prize draws attention to the exceptional quality of UK museums and hopefully that will act as a very powerful argument in favour of new investment in the future."

As well as the main prize, a £10,000 Clore award for learning was given to the Hepworth for its education programme. Judges said: "The integration of curatorial and learning programmes – which so many museums attempt – has rarely been achieved so completely and impressively as at the Hepworth Wakefield. It is educational, aspirational, and inspirational to the core."

This year's judging panel included journalist Sarah Crompton, historian Bettany Hughes, MP Tristram Hunt and artist Bob and Roberta Smith.

© The Guardian

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