OXFORD University has agreed to build a new health centre at the Radcliffe Infirmary as part of the site's £240m redevelopment.

The university is to create a £10m purpose-built health centre to allow cramped GP practices to be rehoused and to offer a range of services such as physiotherapy clinics.

A deal signed with Oxfordshire Primary Care Trust looks to have resolved a long-running planning dispute over a 'super surgery' serving Oxford city centre.

The health trust's own scheme to build a centre at the Radcliffe Infirmary floundered in the face of opposition from both city planners concerned about extra traffic and the university itself, which acquired the prime 10.5-acre site.

To get its health centre, the health trust is having to settle for a smaller city centre facility, about a quarter the size of the scheme originally proposed.

A detailed planning application will be submitted in March, with the health centre expected to open at the end of 2008 as the first new building on the redeveloped site.

The new facility will allow three GP practices which are operating in the cramped buildings in the Jericho Health Centre to be rehoused, along with a practice at the North Oxford Medical Centre, in Woodstock Road. It will not, however, be big enough to accommodate GPs based in premises in Beaumont Street, as had been hoped.

The centre will be built at the far north-western corner of the RI site, facing on to Walton Street. Additional community-based health services will include podiatry, speech and language therapy and point-of-care testing such as ECGs.

Oxford University had been obliged to offer 2.8 acres of the site to the health trust as part of the deal when it bought the large hospital site three years ago.

But under the new agreement, the trust will not be taking up the option. Instead the university will fund and construct a new 3,500 sq m health centre building and will then lease the building to the PCT over 25 years.

By building the new health centre itself, the university has effectively guaranteed that the new facility will fit in with its masterplan for the site.

The Radcliffe Infirmary will close as a hospital early in the New Year, with departments, staff and patients being moved over the next few weeks to the expanded John Radcliffe.

The RI site will then be transformed into a major university campus, with the new Institute of Mathematics alone costing in the region of £40m.

The university is hopeful that the smaller scale of the development will satisfy city council concerns about adding to road congestion. The original super surgery plan had proposed 165 car parking spaces. The number of places under the new scheme is yet to be fixed.

Andrea Young, chief executive of Oxfordshire PCT, said: "Our partnership with the university offers a real opportunity to improve primary care services for local people.

"This is a positive step to providing our GPs with a modern, patient-centred environment to meet advances in healthcare."

The health trust's search for suitable sites for premises in the city centre sparked two years of planning arguments and public consultation.

But the new deal leaves the trust still requiring a second major city centre site. The university has undertaken to assist the PCT to explore land options for another major healthcare facility in the city's West End redevelopment area.

A PCT spokesman said: "This could provide a new home for GP practices suffering from lack of space and inflexible accommodation in buildings in Beaumont Street, which is leased from St John's College.

"It would also address the concerns of the public and local councillors who say they want more primary care provision to the west of the city centre."

Any West End facility could be funded under a Local Improvement Finance Trust (LIFT) scheme, which involves creating a limited company with partners.