The new development is a representation of the universe, and will surround the existing 'world' development off Dubai's coastline.
The development, "draws its inspiration from the wonders of the solar system, with islands in the shape of the sun, the moon and the planets," according to the developer, Nakheel.
Construction will begin, "following engineering, feasibility and environmental studies that are already underway."
Executive chairman of Nakheel, Sultan Ahmed Bin Sulayem said, "Dubai has always been a city that looks forward and the planned development of The Universe will satisfy the future demand for further waterfront investment opportunities and development in Dubai.
"The real estate market is driven by the dynamics of demand and supply - The Universe will be a phased project that will evolve to meet future demand," he said.
Alongside the Universe development, Nakheel also announced a vast redevelopment of the area around Port Rashid, with container operations moving to Jebel Ali. The Port Rashid development would provide housing for around 200,000 people.
The first phase of the 'World' development cost £1.5bn to develop. The 'Universe' development appears larger, but with the final completion date some 20 years away, the final size of the project is unknown.