Designed by Studio MB, the project will involve the restoration of the historic buildings, the enhancement of interpretation and displays, and the creation of a new building which will house an exhibition space, café, toilet facilities and information areas.

The HLF support completes a major funding package made up of grants from Historic Environment Scotland, Highlands and Islands Enterprise, Orkney Islands Council’s LEADER fund and Capital Projects programme.

Tender documents will be issued towards the end of the year, with work due to start in spring 2018.

The museum is set to re-open in time for the commemoration marking 100 years since the scuttling of the German High Seas Fleet in Scapa Flow in 1919.

Councillor Rob Crichton, chair of the council’s education, leisure and housing committee, said: “Attracting such a high level of external funding to this project is a real success story for one of our most fragile island communities. The restoration will not only ensure the future of our collections, but also support the local community in Hoy, which relies on the centre to attract visitors to the island, with more than 14,000 visits in 2016.”

Wilfred Weir, the council’s executive director of education, leisure and housing, said: “This is great news and results from a huge amount of work by colleagues to get to this stage. The renovated museum and visitor centre will be a fantastic asset to Lyness, Hoy and Orkney as a whole and celebrate the importance of Scapa Flow in the history of our country. As well as being a valuable resource for visitors to our islands, it will help preserve artefacts for current and future generations at home here and abroad.”

Lucy Casot, head of the Heritage Lottery Fund in Scotland, added: “Scapa Flow has an internationally important story to tell and thanks to players of the National Lottery, we’re delighted to support a project which will do just that. Rare military equipment from both World Wars, along with stories from some of the 12,000 people once stationed there, will help bring the sheltered harbour’s incredible history back to life, exploring how it shaped the history of travel, trade and maritime warfare.”

Scapa Flow Visitor Centre and Museum is based in wartime naval buildings at Lyness in Hoy. The museum tells the story of the anchorage in World War 1 and World War 2. This is made all the more resonant and powerful by being situated in the unique buildings which were themselves part of the story.

Scapa Flow had strategic importance and was the Royal Navy’s principle fleet anchorage during the two world wars. Lyness became the Naval Headquarters in Orkney during 1919, having been used since 1917 as an oil depot. Work began in the late 1930s to enlarge the base, which housed 12,000 military and civilian personnel by 1940.

The museum is centred around the former fuel oil pumping station. It illustrates the importance of Scapa Flow as a base for the British Fleet through photographs, text, artefacts, films and an audio exhibition plus a collection of large military vehicles, cranes and artillery.

The large exhibits and the audio visual display are housed in one of the oil tanks that once held 12,000 tons of fuel oil for the fleet.