The UK is to establish a naval base in Bahrain, which could be used to launch airstrikes against Isis militants, surveillance operations, and operations to combat piracy.
The base in Mina Salman Port will be the UK's first permanent base in the Middle East since 1971, when it formally withdrew from the region.
Bahrain will pay most of the £15 million cost of building the base, with the UK to pay ongoing costs.
The UK already has four minesweepers permanently based in the port, which dock in US facilities.
After signing the deal to build the base in Manama, Bahrain, UK Foreign Secretary Philip Hammond said it was "just one example of our growing partnership with Gulf partners to tackle shared strategic and regional threats".
He said the move "builds upon our 30-year track record of Gulf patrols".
As arguably the UK's most important naval base outside its own shores, it would be used to launch airstrikes against Islamic State (Isis) militants in Iraq, alongside as part of the US-led campaign against the group.
It will also be used as a base to launch operations to combat international piracy, and to conduct surveillance.
Critics though have questioned the UK's strategic alliance with Bahrain, where in recent years there have been mass protests by the country's Shia majority, which were violently suppressed.
Defence Secretary Michael Fallon said the base would mark Britain's "long-term" military presence in the region.
"This new base is a permanent expansion of the Royal Navy's footprint and will enable Britain to send more and larger ships to reinforce stability in the Gulf.
"We will now be based again in the Gulf for the long term."
Bahrain's foreign minister, Sheikh Khalid bin Ahmed Al Khalifa, said the deal, "reaffirms our joint determination to maintain regional security and stability in the face of challenging circumstances, and gives further strength to our multifaceted partnership.
"Bahrain looks forward to the early implementation of today's arrangement and to continuing to work with the UK and other partners to address threats to regional security."