Britain is seeking to become a founding member of the Asian Infrastructure Investment Bank (AIIB) – a Chinese-led initiative that is expected to rival the World Bank and the Asian Development Bank in the Asian region.
The move has angered Washington, which said it is wary of Britain's "constant accommodation" of China.
In October 2014, representatives of 21 Asian nations convened in Beijing to inaugurate the AIIB, which is focused on providing funding to infrastructure projects within Asia. The bank was initially capitalised with $50bn (£31bn, €39.5bn), half of which was funded by China.
Britain is the first major Western country to apply to become an AIIB member. It will meet with other founding members in March to discuss the governance and accountability arrangements.
"This support can complement the work already done in the region by existing multilateral development banks such as the World Bank and the Asian Development Bank," the British government said in a statement.
"I am delighted to announce today that the UK will be the first major Western country to become a prospective founder member of the Asian Infrastructure Investment Bank, which has already received significant support in the region," said Chancellor George Osborne.
"Joining the AIIB at the founding stage will create an unrivalled opportunity for the UK and Asia to invest and grow together."
China has welcomed the decision, and its finance ministry said Britain will become a founding member of the AIIB by the end of March, if everything goes well.
While the US signalled its worries over the decision, it noted that Britain could use its influence to bring in high standards of governance at the institution.
"We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power," a US official earlier told the Financial Times.
"This is the UK's sovereign decision. We hope and expect that the UK will use its voice to push for adoption of high standards," a statement from the White House said.