We want to stay close to our customers - most of whom are based in the City

Clara Furse, Lodon Stock Exchange

The move follows speculation that the LSE would relocate outside the traditional Square Mile of the City, in attempt to break with what some see as its stuffy past.

The exchange, which has been based at its current location - next to the Bank of England - for 228 years, had been linked with a move to Docklands.

But news that it will stay within the City will be seen as a vote of confidence in the area as a world financial centre.

Ambitious plans

The Paternoster Square lease is for 25 years and covers 220,000 square feet of office space with an initial rental charge of �12.5m, the exchange said.

Paternoster Square: in the heart of the City

LSE chief executive Clara Furse said: "The City is widely regarded as the financial heart of Europe and the London Stock Exchange is part of its lifeblood.

"We want to stay close to our customers - most of whom are based in the City."

She added: "The Exchange has ambitious plans to expand its products and services, and develop its position as the leading European equity exchange.

"We will be marketing our services hard and this building, where we will be the 'lead tenant', gives us additional marketing and brand-building opportunities."

She said the exchange had also taken into account the popularity among broadcasters of its media centre, a key element of which was its location in the City.

Controversial site

The LSE will now look to sell its Exchange Tower site, which is valued at �93m.

The developers claim St Paul's will still be visible

The proceeds will be used to fund new initiatives and meet moving costs.

Last month, an LSE spokesman told BBC News Online that a shift in technology was one of the key factors which prompted the decision to move.

"We're a different organisation now, we're more electronic, we don't need as much space," he said.

The multi-million pound Paternoster Square development, which was begun in 1999 by Japan's Mitsubishi Estate Company, has not been without controversy.

Traditionalists have accused it of ruining views of St Paul's Cathedral.