The United States is to abandon its embassy in London’s diplomatic quarter for a high-security compound south of the Thames that will offer better protection against the terrorist threat.

After 200 years in Grosvenor Square, Mayfair, the embassy will transfer to a site overlooking the river between Battersea power station and the headquarters of MI6 at Vauxhall.

Diplomats will swap London’s premier residential and shopping district for a former industrial site in an area renowned for its hard-core gay clubs.

The planned move comes after a worldwide review of the safety of US embassies as a result of the September 11 terrorist attacks and the War on Terror. A number have moved to secure locations outside city centres.

The London embassy, the biggest in Western Europe, was considered a key target for terrorism because of Britain’s close link to the United States. It has almost 800 staff, about half of whom are American.

The move will end a diplomatic presence in Mayfair dating back to the founding of the United States. Grosvenor Square was home to John Adams, the first Ambassador to London and the second President of the United States, from 1785 to 1788. The present 600-room embassy building was completed in 1960. There are still more than 930 years on a 999-year lease from the Duke of Westminster. The annual rent of one peppercorn is believed to have been paid in full several years ago with the presentation of three golden peppercorns.

For many people, the building will always be associated with the student protests against the Vietnam War and, more recently, the tributes after the terrorism attacks in 2001.

At least the move would bring an end to the dispute over the £8-a-day congestion charge, which Robert Tuttle, the US Ambassador, has refused to pay on the ground that diplomats are exempt from paying any taxes in Britain. It is claimed that the embassy owes more than £2 million, prompting the former Mayor, Ken Livingstone, to describe Mr Tuttle as a “chiselling little crook”. The new embassy site will be outside the congestion charge zone.

After the September 11 attacks, the present embassy was surrounded by concrete blast barriers and 6ft-high fences, and the road outside was closed to traffic. However, it was still considered vulnerable to vehicle-borne explosives or suicide attacks. Additional security measures requested by the embassy were opposed by neighbours, with more than a hundred residents taking out a newspaper advertisement complaining that its presence left the surrounding area vulnerable to terrorist attack.

The embassy is reported also to have considered developing the former Chelsea Barracks or a site in Osterley, near Heathrow. It was even rumoured to have asked to move into Kensington Palace, the former home of Diana, Princess of Wales.

Mr Tuttle admitted yesterday that security concerns were a key factor in the planned move, but said he also hoped that the new embassy would help to revitalise the south bank of the Thames. “We looked at all our options, including renovation of our current building,” he said. “In the end, we realised that the goal of a modern, secure and environmentally sustainable embassy could best be met by constructing a new facility.”

The ambassador said that the embassy would remain in Grosvenor Square if the move was not approved by Congress or local planners. The sale of the present building and proceeds from the recent disposal of the navy annexe would cover the cost of the new embassy, he said.

Mr Tuttle has already signed a deal with the Ballymore Group to buy the freehold of the new embassy site in the Nine Elms Opportunity Area. An international design competition will be held for the building.

Robert Davis, deputy leader of Westminster City Council, said: “We will be sorry to see the US Embassy leave as the current security arrangements we negotiated are working well, but we understand their desire to be in a more secure compound. Their departure will provide an opportunity for this famous site to be used by some other major organisation.”

The embassy will be put up for sale “almost immediately”, although buyers will be told that the building will not be vacated for at least five years.

Estate agents are reported to have placed a value of £500 million on the building, with developers expressing interest in using the site for a luxury hotel or flats. English Heritage has been in discussions with the embassy, however, over the possibility of giving the building a Grade II listed status, which would restrict the development possibilities severely.

Times Recommends

• British ‘tortured and jailed Obama’s grandfather’
• BA in merger talks with Qantas
• Mumbai police were ill equipped for attacks