A Trojan horse in green-and-white hoops is trundling its way unnoticed towards the heart of English football.

Carlisle-based Celtic Nation currently plays before crowds of around 50 people in division one of the Northern League, the eighth tier of English football. But the Observer can reveal that an audacious master plan is afoot which could in effect see an English version of the famous Scottish club, Celtic FC, participating in the Premier League.

For 16 years of its 18-year existence, Celtic Nation was known as Gilford Park, until a chance meeting between some of its supporters and a US-based Glaswegian millionaire on a lay-by in north-west England. Frank Lynch, a 73-year-old diehard supporter of the current Scottish champions, helped to shape the career of Billy Connolly when he ran Glasgow's Apollo Theatre concert venue.

He was seeking a small and unknown English club to launch his dream when he stopped to help some supporters of Gilford Park whose bus had broken down. They persuaded Lynch to come and watch their local heroes and, within a year, the club's name had been changed to Celtic Nation. They now play in the green-and-white hoops made famous by the Glasgow team and have adopted a new club crest which bears an uncanny resemblance to that of Celtic FC.

Already Celtic Nation have begun to build a squad of players designed to propel them through the feeder divisions of the English Football League. Last week they were able to outbid several senior Scottish clubs to sign Greenock Morton striker Colin McMenamin.

In an interview with the Daily Record yesterday, Lynch said: "There are 92 clubs in England, but none of them caters specifically for the Scottish and Irish communities in their midst. I want to establish a club that has a Celtic identity and would like to encourage people of Scottish and Irish heritage to come and watch us play. Celtic Nation have a ground with security of tenure and they're going somewhere. My project is like climbing Everest – but we've got past the stage of establishing our base camp, and word of mouth will take us from the bottom of the game's pyramid to somewhere higher."

Although Celtic FC have no official connection with Celtic Nation, there has been intense speculation within the Carlisle online community that this may eventually become a vehicle for the Scottish champions to invade England.

One supporter commented on a fan site last week: "Is this really Celtic FC getting a foothold in English football? Glasgow-born owner, new team colours to match the famous hoops – think this could be worth watching as they develop."

For a decade or so, it has been one of Celtic FC's stated aims to secure entry to the English Football League system. They were the first British club to lift the European Cup and have a global supporter base rooted in the Scottish and Irish diasporas that is thought to number several million. Although it is generally accepted that they have long outgrown Scottish football, previous overtures to England about joining its league have been rebuffed. Uefa, European football's governing body, also takes a dim view of cross-border league arrangements. Meanwhile, Celtic supporters have looked on with envy as what they consider to be boutique clubs such as Chelsea have developed pretensions of European grandeur.

The fate of their fierce city rivals, Glasgow Rangers, who went into financial liquidation last year and are currently trying to fight their way back to the top through Scotland's lower divisions, has left Celtic marooned. They are participating in a league which is not fit for its primary purpose – of providing competition. They are also a cash-rich club which has already banked around £40m this year from player sales and participation in last season's Champions League. Possessing such riches, though, is no fun if you can only spend it in the local supermarket.

Last night a source close to Lynch said: "All the significant people associated with this project are committed supporters of Celtic FC. We have all become deeply frustrated that Celtic will never develop its full potential in Scotland, where the game is dying. Celtic Nation will take the best attributes of Celtic FC and bring them into English football. Our location will be important for attracting support from Scots, Irish and English fans who have an affinity for Celtic."