Engines for interplanetary travel and futuristic space planes will be tested at the centre, to be built over the next year or so, on the site of the former Rocket Propulsion Establishment at Westcott in Buckinghamshire.
It was here that early work was carried out on two early British space rockets - Black Arrow and Blue Streak - both of which were eventually scrapped.
The UK Space Agency, which made the announcement, said the £4.12m project would give UK companies and research organisations "a new facility for space technology testing."
Katherine Courtney, interim chief executive of the UK Space Agency, said: "Opening these facilities up to UK companies and academia will allow them to develop and test future propulsion engines.
"We hope this will develop the UK's competitive edge in space propulsion and produce the next generation of propulsion engines."
The Rocket Propulsion Establishment, set up in 1946, was for many years so secret that it was not marked on Ordnance Survey maps.
Rocket motors for British guided missiles were designed and developed at Westcott until the mid-1990s.
The site, eventually taken over by British Aerospace, is now a business park which already houses a number of space technology companies
The new centre, which will use some existing industry-owned facilities, will have a vacuum chamber to allow rocket testing at simulated high altitudes.
One industry stakeholder donating facilities is Moog-UK, which built the Leros 1b rocket engine that recently placed Nasa's Juno spacecraft in orbit around Jupiter.
Among the centre's customers is expected to be British company Reaction Engines, which is developing a revolutionary air-breathing rocket called Sabre for powering reusable space planes.
"The new capability will allow cost-effective development and testing of even more impressive engines for interplanetary travel, as well as for the significant commercial telecommunications satellite market," said the UK Space Agency.
Developed in the 1950s, Blue Streak was an all-British medium-range ballistic missile designed to deliver nuclear warheads. It was later adapted to form the first stage of a European satellite launch vehicle, Europa.
The aim was to maintain an independent British nuclear deterrent, replacing the ageing V-bomber fleet of nuclear strike aircraft.
During development it became clear that the ground-based missile system was too expensive and vulnerable, and Blue Streak was cancelled in 1960.
For a short while the rocket lived on as part of the Europa project undertaken by the European Launcher Development Organisation, the forerunner of the European Space Agency. After a serious launch failure in 1971 Europa was abandoned.
Black Arrow, developed during the 1960s, was a three-stage British satellite-carrying rocket that also had a short life.
In 1971 it placed the Prospero satellite into low Earth orbit - the first and only successful orbital launch to be carried out by the UK.
The rocket was retired after only four launches on grounds of cost.