Vaadhoo Island Council has contracted Faalan Holdings to develop a four-star guesthouse in the island.
The proposed guesthouse will be built on the northern side of Vaadhoo which will be developed as a tourism zone.
The 3-hecrtare plot is leased to Faalan Holdings for a period of 50 years.
The US$8 million project, which will also see the development of a dive centre and water sports centre, will be completed within two years, the company said.
The project agreement was signed by President of Vaadhoo Island Council, Hussain Ali and Deputy Director of Faalan Holdings, Hassan Abdulla Saeed at a ceremony held at Vaadhoo School on Wednesday.
According to the company, the project will create many jobs and bring further development to the island.