The new base is part of a deal to increase cooperation in tackling security threats in the Middle East, ministers said yesterday.
Gulf states including Bahrain have found common ground with the United States and European powers in opposing Islamic State militants, and its crown prince yesterday urged war on "evil theocracy".
The tiny island kingdom is part of a US-led coalition carrying out airstrikes on the IS extremist group, which has carved out vast areas of control in Syria and Iraq.
It means Britain will have a place to plan and to store equipment and will be able to add to the four mine-hunter warships based in Mina Salman Port, where Britain currently uses US facilities.
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It will cost 15 million British pounds to build (USD 23 million, 19 million euros).
"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," said defence secretary Michael Fallon.
"We will now be based again in the Gulf for the long term."
Nicholas Houghton, head of the British armed forces, told BBC radio: "It's the strategic importance of this. Rather than just being seen as a temporary deployment to an area for a specific operational purpose, this is more symbolic of the fact that Britain does enjoy interests in the stability of this region."
Bahrain's Foreign Minister Khalid al-Khalifa said the deal "reaffirms our joint determination to maintain regional security and stability in the face of challenging circumstances".
"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," Khalid said.
Britain retains two sovereign bases on Cyprus in the Mediterranean.