During the six centuries of its storied existence, there was nothing else quite like Nalanda University. Probably the first-ever large educational establishment, the college – in what is now eastern India – even counted the Buddha among its visitors and alumni. At its height, it had 10,000 students, 2,000 staff and strove for both understanding and academic excellence. Today, this much-celebrated centre of Buddhist learning is in ruins.

After a period during which the influence and importance of Buddhism in India declined, the university was sacked in 1193 by a Turkic general, apparently incensed that its library may not have contained a copy of the Koran. The fire is said to have burned and smouldered for several months.

Now this famed establishment of philosophy, mathematics, language and even public health is poised to be revived. A beguiling and ambitious plan to establish an international university with the same overarching vision as Nalanda – and located alongside its physical ruins – has been spearheaded by a team of international experts and leaders, among them the Nobel-winning economist Amartya Sen. This week, legislation that will enable the building of the university to proceed is to be placed before the Indian parliament.

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"At its peak it offered an enormous number of subjects in the Buddhist tradition, in a similar way that Oxford [offered] in the Christian tradition – Sanskrit, medicine, public health and economics," Mr Sen said yesterday in Delhi.

"It was destroyed in a war. It was [at] just the same time that Oxford was being established. It has a fairly extraordinary history – Cambridge had not yet been born." He added, with confidence: "Building will start as soon as the bill passes."

The plan to resurrect Nalanda – in the state of Bihar – and establish a facility prestigious enough to attract the best students from across Asia and beyond, was apparently first voiced in the 1990s. But the idea received more widespread attention in 2006 when the then Indian president, APJ Abdul Kalam set about establishing an international "mentoring panel". Members of the panel, chaired by Mr Sen, include Singapore's foreign minister, George Yeo, historian Sugata Bose, Lord Desai and Chinese academic Wang Banwei.

A key challenge for the group is to raise sufficient funds for the university. It has been estimated that $500m will be required to build the new facility, with a further $500m needed to sufficiently improve the surrounding infrastructure. The group is looking for donations from governments, private individuals and religious groups. The governments of both Singapore and India have apparently already given some financial commitments.

Mr Sen said the new Nalanda project, whose ancestor easily predated both the University of Al Karaouine in Fez, Morocco – founded in 859 AD and considered the world's oldest, continually-operating university, and Cairo's Al Azhar University (975 AD), had already attracted widespread attention from prestigious institutions. The universities of Oxford, Harvard, Yale, Paris and Bologna had all been enthusiastic about possible collaboration.

Some commentators believe a crucial impact of the establishment of a new international university in India would be the boost it gave to higher education across Asia. A recent survey of universities by the US News and World Report magazine listed just three Asian institutions – University of Tokyo, University of Hong Kong and Kyoto University – among the world's top 25.

Writing when plans for Nalanda were first announced, Jeffery Garten, a professor in international business and trade at the Yale School of Management, said in the New York Times: "The new Nalanda should try to recapture the global connectedness of the old one. All of today's great institutions of higher learning are straining to become more international... but Asian universities are way behind." He added: "A new Nalanda could set a benchmark for mixing nationalities and culture, for injecting energy into global subject. Nalanda was a Buddhist university but it was remarkably open to many interpretations of that religion. Today, it could... be an institution devoted to global religious reconciliation."

As Mr Garten pointed out, the new university will have much to live up to. The original, located close to the border with what is now Nepal, was said to have been an architectural masterpiece, featuring 10 temples, a nine-storey library where monks copied books by hand, lakes, parks and student accommodation. Its students came from Korea, Japan, China, Persia, Tibet and Turkey, as well as from across India. The 7th Century Chinese pilgrim, Xuanzang, visited Nalanda and wrote detailed accounts of what he saw, describing how towers, pavilions and temples appeared to "soar above the mists in the sky [so that monks in their rooms] might witness the birth of the winds and clouds".

Yet the project is not without controversy. Mr Sen was yesterday asked about reports that claimed the Dalai Lama, the Tibetan Buddhist leader who has lived for more than 50 years in the Indian town of Dharamsala, had been deliberately omitted from the project to avoid antagonising potential Chinese investors and officials. He replied: "He is heading a religion. Being religiously active may not be the same as [being] appropriate for religious studies."

The Indian authorities believe the establishment of the college would act as a global reminder of the nation's history as a centre of learning and culture. Politician Nand Kishore Singh, who sits on the country's influential federal planning commission and who is also a member of Nalanda's steering group, said legislation would be placed before the parliament this week. He added: "I think there is strong bi-partisan support."