As part of an initiative to make better use of its buildings, The Royal Parks has awarded a contract to the Serpentine Gallery to establish a new gallery in The Magazine building in Kensington Gardens, London.

The Grade II listed building is situated on West Carriage Drive, on the north side of the Serpentine Bridge.

The project, to be known as the Serpentine Sackler Gallery, has been made possible by The Dr Mortimer and Theresa Sackler Foundation, which has given the largest single gift the Serpentine Gallery has received in its 40 year history. It also received a donation from ICAP in 2009 towards the initial research and development of the new display space.

Mark Camley, chief executive, The Royal Parks said: "We are delighted to bring this unique listed building back into public use, providing an exciting new cultural destination for park visitors. The building will complement existing park features and facilities and bring real benefit to Kensington Gardens."

Julia Peyton-Jones, director, and Hans Ulrich Obrist, co-director, Serpentine Gallery said: "This is the opportunity of a lifetime for the Serpentine Gallery. We have been interested in the potential of the building for some time and how it could help us expand the range of what we do."

The building will be fully renovated by Pritzker Prize winning architect Zaha Hadid, with plans including a restaurant, cafe and shop in an adjoining pavilion.

Scheduled to open in 2012 ahead of the London 2012 Olympic and Paralympic Games, the new art gallery will provide more than 880sq m (9,500sq ft) of galleries and social space, about the same as the Serpentine Gallery itself.

The scheme is subject to planning permission and listed building consent; a planning application is due for submission in 2011.