The establishment is being developed to support Royal Navy deployments in the Gulf through the creation of a permanent and improved base.

The agreement marks a strategic shift for Britain, which formally withdrew from its major Gulf military bases in 1971.

The British Foreign Secretary, accompanied by navy personnel, attended the grand ceremony at Bahrain’s Mina Salman Port, marking the beginning of construction works at the new Royal Navy base.

Mr Hammond said there was a worldwide battle for the “hearts and minds” of young Muslims, and the Government “will be making the case at every opportunity that it is possible to be a good Muslim and a good British citizen”.

The deal ensures a permanent footing for the Royal Navy in the oil-rich Gulf, Hammond said.

“The new facility will enable Britain to work with our allies to reinforce stability in the Gulf and beyond”, Mr Hammond was quoted as saying by the BBC.

Bahrain has been criticised over allegations of serious human rights abuses, but Hammond said the United Kingdom was helping the Persian Gulf State to change.

In a speech in Manama, Bahrain, Mr Hammond said: “W e in Britain, have recognised – perhaps later than we should have – that to prevail in that struggle, we have to tackle all forms of extremism, not just violent extremism”.

Construction of the base will cost £15 million ($23 million, 19 million euros) and, according to Bahrain’s Al-Wasat newspaper it should be completed next year.

He described countering Islamist extremism is the “great challenge of our time” and warned the worldwide community they must face the problem.

Bahrain declared independence from Britain in 1971 and signed a new treaty of friendship with the UK.

Britain is part of the US-led coalition but takes part only in air strikes on Iraq, with its warplanes taking off from the Royal Air Force base at Akrotiri in Cyprus, where it also has a second garrison.