Arla Foods UK has unveiled ambitious plans to build the world's biggest fresh milk dairy on the outskirts of London by 2012, creating about 500 new jobs.

The new facility will process up to one billion litres of milk a year double the eventual capacity of Wiseman's industry-leading Bridgwater dairy once upgrade work has been completed.

Although it was too early to give details of the exact size of the site, chief executive Peter Lauritzen claimed it would be "double the size of any existing plant in the country". It would also incorporate the most sustainable building techniques and be the most efficient and environmentally advanced dairy in the world, he added.

Arla Foods UK is currently finalising its search for a site and will present detailed plans to the board of parent company Arla Foods amba in early 2010, after which building work is expected to commence.

The company had chosen London for the new mega-dairy because it was the most economical location from which to service its customers, said Lauritzen. "Our possibilities study shows it's cheaper to place a processing plant where the people are compared to where the milk is. It is twice as expensive to transport packed milk bottles than to transport milk in tankers."

Lauritzen denied the opening of the new site would lead to closures elsewhere. "All our plants are at full capacity we need more capacity and it's not about reducing that," he said. The dairy would also give Arla a significant foothold in the south of England, complementing its northern base in Stourton, Leeds, which received £70m of investment at the beginning of the year, he added.

Arla hasn't revealed the projected cost of the new dairy, but it is expected to dwarf Robert Wiseman's £100m outlay at Bridgwater last year.

"What it does more than anything is display confidence about the future of the dairy industry in the UK," said Dairy UK director general Jim Begg.