Chile has won the right to host a telescope dubbed 'the world's biggest eye on the sky' by the European astronomical consortium behind the project.
Known as the European Extremely Large Telescope (ELT), it is expected to begin operations in 2018.
The European Southern Observatory (ESO), the intergovernmental astronomical research agency which already has three star-gazing facilities in Chile's northern Atacama desert, announced the choice of site as a key milestone.
Advocates argue that the desert's Armazones mountain - altitude 3060 metres - is the perfect place for the US$1.3 billion (A$1.4 billion) project because its skies are cloud-free 320 nights a year.
The ESO hopes the new telescope could be as revolutionary in the field of astronomy as Galileo's telescope was 400 years ago.
"This is an important milestone that allows us to finalise the baseline design of this very ambitious project, which will vastly advance astronomical knowledge," says ESO Director General Tim de Zeeuw.
Answering unsolved questions
The huge telescope is to be fitted with a mirror 42 metres in diameter to allow optical and near-infrared peering into the heavens.
The ESO's three facilities in the Atacama Desert include the Very Large Telescope (VLT) in the town of Paranal, which is currently considered the foremost European-operated observatory.
According to the agency, the VLT last year captured the oldest, most distant recorded object in the universe, the aftermath of a cosmic explosion dating back 13 billion years.
But the ELT, on which work is to begin in December 2011, is intended to dwarf the VLT.
ESO hopes the ELT will "address many of the most pressing unsolved questions in astronomy."
Dr Chris Lidman, an astronomer with the Anglo Australian Observatory in Sydney, believes the ELT will be a "big development" in astronomy.
"It's a 42 metre telescope, which means the diameter of the mirror is five times larger than the largest current telescope," he says.
Lidman, who previously worked at ESO's La Silla Paranal Observatory, says large ground-based telescopes such as the ELT can provide images as good as, or better than, their space-based cousins.
"The Hubble Space Telescope is slightly larger than 2 metres in diameter and the James Webb Telescope is around 6 metres; so 42 metres is a lot larger," he says. "You can collect a lot more light and see much fainter targets."
The ELT will use 'adaptive optics' to correct for any distortions caused by the Earth's atmosphere.
Lidman says Australia isn't currently involved in the ELT project, but expects this may change.
"Australia has built instruments for some of these large telescopes in the past. That may certainly happen again in the future," he says.
Australia is currently part of the Magellan telescope consortium, which is planning to build a 25 metre telescope in Chile's Atacoma Desert. A third telescope, known as the Thirty Metre Telescope (TMT) is also on the drawing board, to be built on Mauna Kea in Hawaii.