A bronze casting of Fawcett will be unveiled next year to coincide with the centenary of women winning the right to vote.
The Mayor of London Sadiq Khan said the statue was "long overdue".
"This will be one of the most momentous and significant statues of our time," Khan was quoted as saying by the BBC.
Fawcett founded the National Union of Women's Suffrage Societies in 1897, aged 50.
The organisation used peaceful tactics to campaign, including non-violent demonstrations, petitions and the lobbying of MPs.
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The statue will portray Fawcett holding a placard reading "courage calls to courage everywhere" - taken from a speech she gave after the death in 1913 of campaigner Emily Wilding Davidson at the Epsom Derby.
The new statue will be designed by Turner Prize-winning artist Gillian Wearing and will be paid for using the five million pounds fund announced in this year's spring Budget to mark next year's centenary of the first British women to get the vote.
Millicent died in 1929, a year after women were granted the vote on equal terms to men.
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