Fonterra said the new facility, which will be built in Melbourne, Australia for around NZ$16m (€9.2m, £6.3m) will become its second biggest research and development centre once open in April 2007.
Bob Major, Fonterra's director of innovation, said the centre would be the first of its kind in Australia and would help answer the constant demand for innovation in dairy. The group has launched around 60 new products in Australia alone this year.
The move is one example of how dairy firms are investing to get ahead in an increasingly competitive dairy sector; something firms in the UK have been criticised for falling behind on, despite more progress recently.
Major said the Melbourne centre, together with existing R&D facilities in New Zealand, Germany, Malaysia and Chile, "will ensure our ability to create market-leading products and ensure that Fonterra remains at the forefront of advances in dairy research".
The new facility will employ 150 people and focus specifically on developing products to meet consumers' demand for health and nutrition as well as convenience and indulgence, such as dairy desserts.
"One example of how we are meeting the demand for healthier products is our recent research into the role that lactic acid bacteria play in improved immunity - not to mention other health benefits that it delivers," said Major.
He said Fonterra would also work closely at the Melbourne centre with a number of commercial and non-commercial bodies, such as Food Science Australia and the Gardiner Foundation.
Fonterra has discussed a new initiative with the Gardiner Foundation called the Gardiner Consortium, which aims to unite dairy companies, researchers and funds "to benefit the Australasian dairy industry as a whole".
This approach to dairy research and development was recently proposed in Britain by the National Farmers' Union. It called for a new industry body that helps the industry to pool information on consumer trends and jointly funded 'school of excellence' to aid product development.
Fonterra already has a good reputation for research into cheese flavour technologies, specialist milk powders and nutritional ingredients. Major believes increasing the group's research capacity will only expand dairy's potential and present new growth opportunities on the world market.