Lotus, one of the most successful and glorious names from Formula One's past, will return next year with a Malaysian-owned team replacing BMW-Sauber as the 13th entry on the starting grid.
The governing International Automobile Federation (FIA) said in a statement on Tuesday that, after due diligence and an intensive selection process, it had chosen Lotus.
The new outfit will be called Lotus F1 Team and is a partnership between the Malaysian government and a consortium of Malaysian entrepreneurs.
The cars will be made in Malaysia, by Malaysians, the Malaysian government said in a separate statement.
The vacancy arose after BMW announced that they were withdrawing at the end of the season, following a path already trodden by Japan's Honda.
The FIA said BMW-Sauber, who are still seeking a buyer, had been given a reserve slot to fill any vacancy that might occur between now and the start of the 2010 championship.
In addition, the FIA believes that a good case can be made for expanding the grid to 14 teams, added the FIA.
The FIA will be consulting urgently with the existing teams regarding the introduction of an appropriate rule change to expand the grid to 28 cars in time for the first Grand Prix in 2010.
Leading Malaysian entrepreneur Tony Fernandes will be Lotus team principal.
The 45-year-old set up Asian budget airline Air Asia, currently sponsoring the Williams team, and is Malaysia's 15th richest man with a net worth of $220 million according to Forbes Malaysia 2009 rich list.
Technical director Mike Gascoyne was previously with Force India, their predecessors Jordan, Toyota and Renault.
As part of its application to compete in the 2010 championship, the Lotus team agreed an engine supply deal with Cosworth.
Lotus will initially be based in Norfolk, some 10 miles from the original Lotus Cars factory in Eastern England, but the future design, manufacturing and technical centre will be purpose built at Malaysia's Sepang International Circuit.
The team will announce its two drivers by October 31, 2009. Currently six local and international drivers have been selected, the Malaysian government said.
Three teams had been on the FIA shortlist for the 13th slot: Lotus, a BMW-Sauber entry to be renamed under eventual new ownership and Spain's Epsilon Euskadi.
The original Lotus won seven Formula One constructors' titles and six drivers' crowns between 1963 and 1978 under the inspirational leadership of the late Colin Chapman, one of the most innovative engineers in the sport.
Chapman died of a heart attack in 1982 and the company slid into administration in 1994 after giving the late Brazilian Ayrton Senna his first victory in 1985.
British great Jim Clark spent his entire F1 career with Lotus, winning two titles. The team's other champions include compatriot Graham Hill, Brazilian Emerson Fittipaldi and American Mario Andretti.
In 1970 the team's Austrian driver Jochen Rindt became the sport's only posthumous champion.
The right to the Lotus F1 name was acquired by David Hunt, brother of the 1976 champion James, while the British-based car company was bought by Malaysiam state-owned Proton.
(Additional reporting by Julie Goh in Kuala Lumpur)