"There has been an agreement between all member states to promote the site at Cadarache," a diplomatic source said. Cadarache is near Marseille in southern France.Spain dropped out of the contest to build the project to strengthen the European position against contenders Canada and Japan, the source added.
The mayor of Marseille, Jean-Claude Gaudin, announced the news of the choice of Cadarache to journalists in the city.
"Today's good news is that we have ITER," he said.
The 10 billion euro ITER project aims to create the world's first sustained nuclear fusion reaction, which would last for several minutes, in an attempt to harness the source of the sun's power and tame it for the benefit of humanity.
Fusion is low in pollution, has a virtually limitless supply of fuel in the form of sea water and is less prone to weather conditions than sea or solar power.
(Additional reporting by Tom Heneghan)