Opening a permanent military base in Bahrain marks Britain's clear commitment to a "sustained presence east of Suez", the Foreign Secretary has said.
Philip Hammond told a security summit that bolstering the Royal Navy's presence in the Gulf would allow the UK and its allies in the region to "tackle the threats we face together".
Britain already has four minehunters permanently based at the Mina Salman Port, but the plans will allow for an increase in the number and size of warships sent to the area.
Although military chiefs are understood to have been working towards the move for around two years, the threat from Islamic State has heightened the focus on Britain's presence in the region.
"To our partners in the Gulf my message is this: Your security concerns are our security concerns," Mr Hammond said in a speech in Manama, Bahrain.
"So our strategic priority for the Gulf and for the wider region is to build partnerships. Partnerships for security; partnerships for prosperity; partnerships for stability."
He added: "The expansion of our footprint that this arrangement will now allow means we will have the capability to send more and bigger ships, and to sustain them and their crews in permanent facilities.
"A clear statement of our commitment to our sustained presence east of Suez. A reminder of our historic and close relationship with Bahrain and one example of our growing partnership with Gulf allies to tackle the threats we face together.
"And those threats have taken on a new and insidious form: in Benghazi and in Mosul, in Yemen and in Northern Nigeria, we face a common but shadowy enemy: extremists who seek to hijack Islam to impose their own perverted agenda by fear and by the sword; who reject all norms of civilised behaviour; who challenge all structures of established order."
The move was described as "symbolic" by Chief of the Defence Staff General Sir Nicholas Houghton and reverses a 1960s' decision to withdraw British forces stationed "east of Suez".
Under the deal, existing facilities at the port will be expanded and a forward operating base established, with Bahrain paying most of the £15 million infrastructure costs.
Defence Secretary Michael Fallon said: "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. We will now be based again in the Gulf for the long term."
Mr Hammond signed the deal with Bahrain's foreign minister Sheikh Khalid bin Ahmed bin Mohammed Al-Khalifa.
Sheikh Khalid said: "It reaffirms our joint determination to maintain regional security and stability in the face of challenging circumstances, and gives further strength to our multifaceted partnership.
"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."
A string of human rights groups, including Human Rights Watch, have criticised the state's human rights record, and anti-arms campaigners protested outside a This is Bahrain conference in Westminster earlier this year, demanding the Government and royal family sever all ties with the regime.
Gen Houghton told BBC Radio 4's Today programme: "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.
"And the fact that the Bahraini authorities and government agreed to fund infrastructure within the country to base our maritime capability forward, both is a recognition from their perspective of the quality of the relationship with the United Kingdom, but also of our interest over time in maintaining the stability of this very important area."
Shadow Defence Secretary Vernon Coaker said: "Labour supports the Royal Navy having a strong international footprint with the ability to respond quickly to events in a uncertain global environment.
"British defence policy must be strategically-led. The Strategic Defence and Security Review and a National Security Strategy are due to take place next year, and it was expected long term issues like this would be assessed and decided then.
"The Government should therefore clearly set out its reasons for making this particular decision at this time."