JPMorgan has entered exclusive talks with property developer Hammerson over the construction of a one million square feet building on the site of the St Alphage House building owned by the City of London Corporation.

The new building will consolidate JPMorgan's investment banking operations in one location and house 5200 investment bankers. The facility will feature four trading floors, each measuring 72000 square feet - making them the largest in London.

JPMorgan's decision is seen as a victory for the Square Mile over Canary Wharf, the City's rival development in docklands which houses many investment banks including Citigroup, Barclays, Lehman Brothers and Morgan Stanley.

JPMorgan - which already employs staff at seven sites around the City - had also been considering a site in Canary Wharf for its investment banking operations but opted to build in the Square Mile. A spokesperson for the Canary Wharf Group told reporters that a number of other firms are looking into developing on the site that was being considered by JP Morgan, as well as in other parts of the docklands.

Michael Snyder, chairman of the policy committee of the City of London Corporation, says: "This new building and JPMorgan's continued presence in the City will reinforce London's pre-eminent position as Europe's leading financial capital."

A planning application for the new building will be submitted later this year with an expected start on site during 2008.

Earlier this week British banking group HSBC said it has agreed a deal with Spanish property company Metrovacesa for the sale and leaseback of its head office building in Canary Wharf for £1.09 billion, making it the largest single property deal in UK history.