News of the Higgs Centre for Innovation was announced by Chancellor George Osborne in his Autumn Statement.
He said it was appropriately timed in the week that Professor Higgs travels to Stockholm to collect his Nobel Prize.
The Higgs Centre for Innovation, due to open in 2016, will be constructed on the site of the UK Astronomy Technology Centre (ATC) operated by the Science and Technology Facilities Council (STFC) at the Royal Observatory, Edinburgh.
It will focus on "big data" - large-scale computer processing - and space, two of the most promising technologies of the future, according to the Government.
Drawing on the resources of the ATC and working in partnership with the University of Edinburgh, it will aim to build bridges between academia and industry. As well as a team of scientists and students, the centre will house up to 12 small businesses.
Prof Higgs, who spent his career at the University of Edinburgh, was this year awarded a share of the Nobel Prize in Physics for his prediction almost half a century ago of the Higgs boson, a theoretical subatomic particle responsible for mass nicknamed the "God particle".
In July last year scientists working at the Giant Hadron Collider atom smashing machine near Geneva confirmed the existence of what appeared to be a Higgs particle.
Prof Higgs, 84, said after Mr Osborne's announcement: "This support from the Treasury and the STFC will create an environment in which future generations of scientists from around the world can share and develop ideas."
The UK ATC, where the new innovation centre will be based, specialises in developing equipment and software for astronomical observatories, including some of the world's biggest telescopes. It also conducts its own research and manages collaborations with universities, institutes and companies at home and abroad.
A capital investment from the Treasury of £10.7 million will be used to build the Higgs Centre for Innovation, which is to receive operational funding of £2 million per year from the STFC over a period of five years.
The centre will bring together particle physics, astronomical instrumentation, large-scale computer processing, academics and industry.
Professor John Womersley, chief executive of the STFC, said: "The Higgs Centre for Innovation provides a unique opportunity to bring together the most advanced scientific and engineering expertise with the business support and knowledge needed to take new ideas through to market reality. STFC has a strong and proven track record in helping small and start-up businesses to take advantage of cutting-edge research to successfully compete on a global scale.
"Particle physics, astronomy and space science all address one of the biggest questions in science, what is the universe made of. The Higgs Centre for Innovation will significantly increase the positive impact that arises from fundamental research like this, both in job creation and economic opportunities and growth in the UK."
Professor Sir Timothy O'Shea, principal of the University of Edinburgh, added: "We very much welcome this strategic support. It provides an excellent opportunity to integrate technological developments, championed by world class researchers, with business incubation and positive economic impact. We look forward to working with all partners in this new forum for world quality research and discoveries."
Minister for universities and science David Willetts said the new centre reflected the "valuable contribution" Prof Higgs had made to global science, as recognised by his Nobel award.
He added: "The Higgs Centre for Innovation will focus on big data and space technologies, two of the eight great technologies of the future. The centre will enable us to build on our strong research base and play a major role in helping to bridge the so-called 'valley of death' between the lab and the marketplace."
Prof Higgs already has another scientific facility named after him, the University of Edinburgh's Higgs Centre for Theoretical Physics.
The centre was opened in July last year, after the discovery of a candidate Higgs boson, to explore unanswered questions about the nature of the universe.
In his statement, Mr Osborne said: "Science is a personal priority of mine."
He also confirmed Government spending of £270 million on quantum technology, seen as a cutting-edge area of research with the potential to deliver huge benefits to the British economy.
The funding, over five years, will be used to generate practical applications from the mysterious world of quantum physics, which describes the weird way nature works at very small scales.
Quantum science is already at the heart of satellite navigation, data storage and encryption systems. In the future, it could lead to a new kind of super-fast computer processing and transform secure communications.
Professor Paul Hardaker, chief executive of the Institute of Physics, said both the construction of the new Higgs Innovation Centre and the £270 million investment in quantum technology were "good news for the UK".
He added: "As the Government has clearly recognised, science and innovation have the potential to lead our economic recovery. This new centre will help to capture the value generated by our outstanding research community for the benefit of the economy and society.
"We're delighted that the new centre is to be named after Peter Higgs. With others, his work has made a fundamental contribution to our understanding of sub-atomic particles and led - through the construction and operation of the Large Hadron Collider - to one of the most exciting and productive periods in physics research, inspiring a new generation to engage with our subject."
Mr Osborne also announced the introduction of a £375 million Emerging Powers Research Fund to foster international scientific collaboration which was welcomed by the Royal Society, the UK's leading academic institution.
Sir Paul Nurse, president of the Royal Society, said: "International collaboration is essential to progress in science. The UK has arguably the best scientists in the world and the emerging scientific powers bring their own skills to the table, in many cases backed by large scale investment.
"The fund announced by the Chancellor today will allow the UK to further capitalise on our competitive advantage in science to drive forward our own economic interests and global advances in areas such as health and energy."
Mr Osborne's claim that science is a "personal priority" does not stand up, according to the Prospect union.
The union pointed to a 1.1% reduction in Whitehall departmental budgets for 2014-15 and 2015-16 that would hit departments dealing with business and the environment.
Sue Ferns, Prospect's director of communications and research, said: "Government science-related activity is pared to the bone, with devastating cuts already under way."