A £3m museum to tell the story of Oxfordshire's military history looks set to be built in Woodstock.

It will be created on a site behind the Oxfordshire Museum in the centre of the town, bringing to an end months of anxiety about where valuable military collections would be displayed and preserved.

The news follows an agreement between Oxfordshire County Council and the charitable Trust, the Soldiers of Oxfordshire (SOFO), which said it will serve as the county's own Imperial War Museum.

The trust has been pressing for a military museum for eight years. The search became more acute when the collections had to be moved out from the Slade Park Barracks in Headington, where SOFO museum and archive was based.

The site is being redeveloped for housing and student accommodation.

Members of the soldiers' trust expressed delight about the deal, but they are now faced with raising millions to build the military museum.

Major Hugh Babington Smith, project officer for the trust, said: "This is good news. For a long time it had been difficult to see how anything could happen.

"We want to make our military heritage accessible to the public. The scope of the project will extend beyond the former county regiments such as the Oxfordshire Yeomanry and the Oxfordshire and Buckinghamshire Light Infantry.

"We want it to be as relevant as possible to people in county and tell the story of Oxfordshire citizens and their part in conflicts down the centuries."

A one and-a-half-storey building is expected to be built at the rear of the Oxfordshire Museum, on the site of the current Pratten Building.

Staff from the council's Countryside Service and Heritage Service who work in this building will be relocated.

Negotiations with the SOFO and the county council have been ongoing for months. The decision to create a museum in Woodstock is expected to be shortly ratified by the county council's cabinet.

Last year a bid for lottery funding to allow the collections to be stored at the Oxfordshire Museums Store at Standlake was rejected. They are currently stored in temporary accommodation at Caversfield.

Jim Couchman, Oxfordshire County Council's Cabinet Member for Social and Community Services, said: "A lot of hard work has gone in to reaching this stage and we are all happy that we have settled on a way forward that satisfies everyone and creates a viable future for military history in Oxfordshire.

"The county council's Museums Service does an excellent job and I know that the people at SOFO are dedicated and enthusiastic.

"The combination of the two should lead to the offer at the museum in Woodstock being yet more attractive for people from the county and visitors."

The SOFO said it will be consulting widely with the public about what the new building will look like.

Temporary exhibitions on various military themes will be presented in The Oxfordshire Museum from October 2008, curated and funded by the SOFO, who will launch their fund raising campaign for the new building.

The public will be invited to comment on these exhibitions and their comments will help to inform the more detailed exhibition planning of the proposed museum.

Local schools are also involved in the early developmental stages of planning - pupils from the Marlborough School, Woodstock, are contributing their ideas.