It had been mooted that Azerbaijan could be added to the F1 calendar from next year, but the race to be named 'Formula One Grand Prix of Europe' will now be introduced in two years' time.
The country's minister of youth and sport, Azad Rahimov. said: "I am delighted to officially announce that we have signed a contract to bring Formula One racing to Baku in 2016.
"Our location at the crossroads of eastern Europe and western Asia is a new frontier for Formula One racing,
"Azerbaijan is a modern European country that has established a reputation as a centre of sporting excellence. The deal to bring Formula One racing to Baku is a very significant new chapter in our ongoing success to attract the world’s largest sporting events to our country.
"Baku's 'Formula One Grand Prix of Europe' will be a spectacular addition to the Formula One calendar. The course that we are planning to design will be similar to leading street circuits already on the FIA Formula 1 World Championship calendar,"
F1 supremo Bernie Ecclestone welcomed the new addition to the schedule.
He said: "We are very happy that Baku has joined the Formula One family. This will be a street race, which will pass through interesting and picturesque parts of Baku. The event will meet the current Formula One criteria."