Mourners signed a petition asking for a Diana memorial

The proposal for a fountain was officially announced last September and is preferred to a statue or any other form of memorial.

Culture secretary Chris Smith is expected to launch a national search for the best design.

The cost is likely to be partly offset by proceeds from the sale of official Diana commemorative coins.

Petition

It is thought the fountain could be constructed within 18 months somewhere along the seven-mile Diana Memorial Walk.

The government has consulted the Royal Family about the plans and the Royal Parks over a site for the memorial.

There have been increasing calls from the public for a lasting memorial to the Princess.

More than 7,000 people paid their respects to Diana on the second anniversary of her death last August. They signed a petition calling for a permanent tribute to her.

A landscaped memorial walk and a Peter Pan-themed Diana Memorial Playground in Kensington Gardens, close to the Princess's former London home, were opened last month.