Work is set to begin building a new town inspired by the writing of Yugoslavian Nobel literature laureate Ivo Andrić, following plans by film director Emir Kusturica and the Republika Srpska's government.

Andrić, who won the Nobel in 1961, is best known for his novel The Bridge on the Drina, the inspiration behind the new town of Andrićgrad. Written by the author during the second world war, it tells of the three centuries of conflict the bridge of the novel's title has witnessed, situated as it is in the small Bosnian town of Višegrad.

Work on the town of Andrićgrad, which will be located within Višegrad, is due to start this week and to be completed by 2014, reported Serbian news agency Tanjug. Kusturica, who has won the Cannes Palme d'Or twice, told Balkan Insight that it would be "the biggest, most spectacular project of my life", with stone streets, gates and tower, encompassing a museum, library, theatre and memorial to Andrić . The project to build the 17,000-square metre town will be funded by the film director, and by the government of the Republic of Srpska.

"Here, where the Drina flows with the whole force of its green and foaming waters from the apparently closed mass of the dark steep mountains, stands a great clean-cut stone bridge with eleven wide sweeping arches," wrote Andrić in The Bridge on the Drina. "From this bridge spreads fanlike the whole rolling valley with the little oriental town of Višegrad and all its surroundings, with hamlets nestling in the folds of the hills, covered with meadows, pastures and plum-orchards, and criss-crossed with walls and fences and dotted with shaws and occasional clumps of evergreens. Looked at from a distance through the broad arches of the white bridge it seems as if one can see not only the green Drina, but all that fertile and cultivated countryside and the southern sky above."

At an event marking 50 years since Andrić won his Nobel, Republic of Srpska prime minister Aleksandar Džombić called him "the most important writer in Serbian language and in the entire South Slavic literature", and said that the government would honour him "by backing and building Andrićgrad, here in Višegrad".

"There is no doubt that, after Andrićgrad is built, Višegrad and the Republic of Srpska will acquire a new quality of cultural content, stimulating development of tourism and promoting our only Nobel laureate in literature," he said.

According to Balkan Insight, Kusturica is planning to use the setting of Andrićgrad in his films Pancho Villa and The Bridge on the Drina. The director previously built a village, Kustendorf, above the Mokra Gora valley in western Serbia, equipped with an underground basketball arena, a library and a cinema. "One day when I was shooting I noticed a shaft of light hit the hillside. 'There I will build a village,' I thought," he told the Guardian in 2005 . "This is my Utopia. I lost my city [Sarajevo] during the war, now this is my home. I am finished with cities. I spent four years in New York, 10 in Paris, and I was in Belgrade for a while. To me now they are just airports. Cities are humiliating places to live, particularly in this part of the world. Everything I earn now goes into this."