The race - which is likely to be called the Grand Prix of Europe - is set to take place in 2016, the year after the city hosts the inaugural European Games.

It will be the second country in the former Soviet Union to hold a grand prix following Sochi, which is due to make its debut later this year on October 12.

The race in Baku is set to take place on a circuit around the streets of the city, a concept becoming increasingly popular with organisers around the world.

The most famous, of course, is Monte Carlo but other cities which hold races on street circuits are Melbourne and Singapore.

New Jersey and Bangkok are also being proposed as venues for 2015 and plan to use street circuits.

Baku already has experience of hosting an event on the streets of its city.

For the last two years it has staged The City Challenge Baku, an event for GT3-cars, which takes place on a 4.4 kilometre circuit around Crystal Hall, the venue built to host the 2012 Eurovision Song Contest, and the National Flag Square.

Last year's race was won by the Belgian Audi Club Team WRT driven by Pole Stéphane Ortelli and Belgian Laurens Vanthoor before a crowd estimated at more than 50,000.

Baku already hosts an annual event for GT3 cars which takes place around the city's streets under the shadow of the iconic Flame Towers ©City Challenge Baku

The agreement - signed with Bernie Ecclestone, President and chief executive of Formula One Management - adds to a growing portfolio of events to be staged in Azerbaijan over the coming years, including the 2015 European Games, which is expected to attract athletes from 49 countries to compete in 19 events.

"We have signed the deal with Bernie Ecclestone and will announce it officially with an event in Baku shortly," said Azad Rahimov, Azerbaijan's Minister of Youth and Sports, who is also the chief executive of Baku 2015. 

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