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, ending months of anxiety about where valuable military collections would be displayed and preserved.

The news follows an agreement between Oxfordshire County Council and the Soldiers of Oxfordshire charitable trust (Sofo),which says 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 from the Slade Park Barracks in Headington, where the Sofo museum and archive was based.

The site is being redeveloped for housing and student accommodation.

Members of the soldiers' trust are delighted with the deal, but now face raising millions to build the 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. We want it to be as relevant as possible to people in the 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, with resident staff being relocated.

Negotiations with Sofo and the county council have been ongoing for months. The decision to create a museum in Woodstock could soon be ratified by the county council.

Last year a bid for Lottery funding to allow the collections to be stored at the Oxfordshire Museum Store at Standlake was rejected. They are currently stored temporarily 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. 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 museum in Woodstock being yet more attractive for people from the county and visitors."

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

Exhibitions on military themes will take place in the Oxfordshire Museum from October 2008, curated and funded by Sofo, which will start fundraising.