Work is to start in the new year on Europe's largest building made from straw bales, which will rise from the slopes of Eccleshill above the river Aire valley in Bradford.

Thousands of tightly packed cubes of compressed straw will form the core walls of the 2,787 square metre complex on a brownfield site, formerly occupied by a now-demolished high school.

The £4m project will house a new community centre for a socially deprived area of east Bradford as well as 14 workspaces for small enterprise startups or "incubators" for fledgling businesses. Funding has been won by the local Newlands Community Association (NCA) which brings together residents and neighbourhood groups from a range of large estates on the edge of the West Yorkshire city.

The straw construction has helped to bring in sustainability funding from the European Union, which is giving £1.19m, and helped the success of a bid for £1m from the government's competitive Communitybuilders fund. The balance has been met by £900,000 from Bradford's Labour-controlled council through the Local Enterprise Growth Initiative and a loan from the Charity Bank.

Tony Holditch, business manager of the NCA, said: "We wanted to really push the boundaries of design and build to create a centre of excellence. In this period of recession and bad news across the country we are investing in something new and different. It's going to benefit a lot of people."

The straw walls will be 3ft thick, with brick pillars as addition load-bearing support, and finished with lime rendering and cedar panels. The complex includes a ground-source heat pump and a rainwater catchment reservoir which will supply lavatories, showers and water for plants within the building.

Extra energy will be generated by photovoltaic cells in the roof and wooden fittings and carpets have been commissioned from recycled material. Construction is expected to take 36 weeks.

Nick Twigg, building consultant at the planning specialists CBRE, whose Leeds office is advising NCA, said: "This building is intended to set the benchmark for sustainable community development in Europe. The result will be a fantastic new centre for the community to benefit from, as well as an exemplar of 'green' building."

Britain's biggest straw building to date is the showroom near Stansted in Essex of fine art auctioneers Sworders, which covers 1,100 square metres. It was built by the Yorkshire specialists Amazonails, based in Todmorden, about 20 miles from Bradford. They have put up over 100 straw bale buildings in Britain over the past 12 years, including a library and building society offices in Bradford.

As their name implies, they also encourage women into the traditionally male-dominated building trade.