The project, which is part of the country’s Vision 2030, will attract governmental and private investments and partnerships as the kingdom adapts to lower oil prices, crown prince Mohammed bin Salman said in a statement.

The $500bn funding for the project, known as NEOM, will come from the Kingdom of Saudi Arabia, its sovereign wealth fund - the Public Investment Fund (PFI) - as well as other local and international investors, according to the statement.

The plan includes a bridge over the Red Sea, connecting the city to Egypt and the rest of Africa.

Approximately 10,000 square miles have been allocated for the development of the project – which will stretch into Jordon and Egypt – and is “the world’s first independent special zone stretching over three countries”.

The crown prince said the city will operate independently from the “existing governmental framework”, working closely with businesses and investors during its development.

“NEOM will be constructed from the ground-up, on greenfield sites, allowing it a unique opportunity to be distinguished from all other places that have been developed and constructed over hundreds of years,” Prince Mohammed said in the statement.

The Saudi Arabia statement said: “[The] NEOM project will serve as a linking point for economic axes, attracting global capital and investment, thus the PIF will get huge returns on the long term, contributing to strengthening the Kingdom of Saudi Arabia's economy and generating high returns for investors.”

The International Monetary Fund managing director Christine Lagarde met the crown prince on Tuesday to discuss Saudi Arabia’s economic outlook and policy developments.

She said at the conclusion of the visit: “Saudi Arabia had made good progress in initiating its ambitious reform agenda.

“Progress with reforms to improve the business environment are gaining momentum, and a framework to increase the transparency and accountability of government is in place.”

IMF said earlier this month the kingdom’s Vision 2030 project had made progress, with fiscal consolidation efforts “beginning to bear fruit”.

The NEOM project was announced at a global business conference in Riyadh on Tuesday this week.