"This will guarantee the presence of the Royal Navy in Bahrain well into the future," UK Foreign Secretary Philip Hammond was quoted by The Telegraph during the signing at a security summit in the capital Manama.
"The expansion of Britain's footprint builds upon our 30-year track record of Gulf patrols and is just one example of our growing partnership with Gulf partners to tackle shared strategic and regional threats," he added.
According to the newspaper, the base, to be set up at the Mina Salman port of Bahrain, will host ships, destroyers and aircraft carriers, as well as help conduct anti-piracy operations and aerial surveillance.
The deal comes in light of increased instability in the region with the rise of Islamic State (IS, also known as ISIS/ISIL) jihadist group. The UK Royal Air Force has been performing airstrikes on IS targets as part of the US-led coalition against the militant extremist group, which has captured vast territories in Syria and Iraq.