Ecclestone said that the seven-year agreement with the Valencia regional government was conditional, however, on the present president Francisco Camps of the centre-right Partido Popular winning local elections to be held later this month.
"The contract will not be signed until after the election, but I'm convinced it will happen," Ecclestone told a news conference.
"This will be an urban circuit rather than a street circuit and even better than some of the ones that are already on the calendar."
The race, to be called the European Grand Prix, is scheduled for late in the season on a newly designed circuit of between 4.1 and 4.3 km in length reminiscent of Monaco's with its harbour-side location.
The circuit will be designed by German Hermann Tilke, architect of the sport's most modern tracks.
"Before I watched grands prix on television and now we are going to have one here," said Camps who is strong favourite to be re-elected to his post.
"I'm convinced that we'll make a excellent job of it because it will be the best urban circuit in the world."
Opposition groups in Valencia were critical, however, accusing Camps of trying to make political capital out of the announcement.
ALONSO EFFECT
Spanish media said that Ecclestone had insisted the race must be in the city rather than at the nearby Ricardo Tormo track
The inclusion of the Valencia race would give Spain two grands prix next year, an announcement at odds with Ecclestone's previous opinion that no European country should have more than one race.
Imola, the Italian circuit that hosted the San Marino Grand Prix, was axed from the calendar this year while the Nuerburgring and Hockenheim are now alternating as hosts of the German Grand Prix.
The European Grand Prix has been held at the Nuerburgring since 1999 as Germany's second race. Brands Hatch and Donington Park in Britain and Jerez in Spain have also hosted races with that name.
Valencia's willingness to pay an estimated 26 million euros ($35.20 million) to stage each race, and the boom in popularity of Formula One in Spain since the emergence of double world champion Fernando Alonso, are seen as major factors behind the decision.
Alonso, speaking at Barcelona's Circuit de Catalunya ahead of Sunday's Spanish Grand Prix, welcomed the announcement.
"We are very happy to race in any place. Now we have two grands prix in Spain, for me it will be okay, it will be nice to see how this sport develops in Spain," the McLaren driver told a news conference.
"Four years ago, we didn't have even TV coverage and now we will have two grands prix. So that's very special."
The Circuit de Catalunya has an agreement to stage the Spanish Grand Prix until 2011.
(Writing by Simon Baskett in Madrid with additional reporting by Alan Baldwin in Barcelona)