The home of what was once one of the biggest names in the confectionery industry is set to enter a new era.

The site of Terry's of York, overlooking the city's Knavesmire, is being bought in a deal thought to be worth around £26m. The huge factory closed last year when its parent company Kraft farmed out its products, including the famous Chocolate Orange, to other sites across Europe.

But now locally-based developer Grantside is buying the site - which it predicts could eventually employ more than 2,000 people - as many as Terry's did in its heyday.

It plans to concert the old office buildings into a prestige hotel with spa and health club which would employ around 200. But the long-term plan of creating 220,000 sq ft of office space on a business park elsewhere on the 51-acre site could create thousands more jobs.

Also envisaged by the developers are high-class apartments in the Grade II-listed building by the racecourse and possibly a new art gallery and a museum.

"This could focus in on the Terry's family history and chocolate-making," said Grantside's managing director Steve Davis.

"We might get a chocolate maker back on the site on a very small scale to make luxury chocolates for sale in the museum."

Employers on the site would also be encouraged to commission artists to create paintings, sculptures and installations to make an art trail across the area.

Mr Davis said Grantside had beaten more than 20 others in the race to acquire the prestige site and they expect to complete the purchase by the end of the month.

Nationally-known hotel chains are said to have already expressed an interest but none are so far being named.

The developers say that factors working in favour of the site for redevelopment include its proximity to both the city centre and the A64, together with its distinctive position by the racecourse and the city's speedy rail links with London.

*Peter Terry, the last member of the Terry family to manage the York chocolate factory, has died at St Monica's Hospital, Easingwold, He had been ill for some years.

His great grandfather Sir Joseph Terry was the son and namesake of the man who gave his name to the firm.

He leaves a widow, Carin and six sons and a daughter.