The decision means developer Prime Investors Capital can start the renovation job early next year turning former offices into a 5-star, 100-bed hotel and private members’ club.

Designs to  renovate sensitively the Grade-I listed building have been drawn up by London-based Blair Associates Architecture.

The redevelopment is part of the Government’s strategy to operate a more efficient government estate and raise over £1 billion for the taxpayer by selling buildings and land no longer needed.

The 99-year lease agreement signed between the Government and PIC will raise £60m from the sale of Admiralty Arch’s leasehold.

Cabinet secretary Francis Maude said: “Buildings like the Arch shouldn’t be sitting empty in the Government’s estate wasting £900,000 a year to run. Instead we’re raising £60m for the taxpayer and working closely on every aspect with Prime Investors Capital (PIC), Westminster City Council and English Heritage to restore it to its former glory.”

PIC boss Rafael Serrano said: “We can now give this historical building a worthy and suitable purpose as its designer Sir Aston Webb originally intended and open it up to the public.

The arch was commissioned by King Edward VII as a tribute to his mother Queen Victoria and was completed in 1912.