Princess Diana's memorial is to be designed in a "spirit of inclusiveness to reach all those who come across it, whatever their backgrounds, culture or creed".

Tessa Jowell announced on Wednesday that the winning design would be the "historic and formal, contemporary and relaxed" proposal designed by Kathryn Gustafson of London-based Gustafson Porter.

The culture secretary announced the final selection after an independent committee, chaired by Rosa Monckton, had failed to agree on which of two proposals should be put forward.

Two finalists were referred to the secretary of state, who along with arts minister Tessa Blackstone, analysed the assessments of the finalists.

The culture department said that the ministers had considered the committee's views of which team best met all the relevant criteria, and had not made a personal judgement about the quality of the bids.

Criteria used to assess the designs were quality, flair and innovation; the approach to project and relevant experience (including impact upon the historic landscape and local ecology); understanding of the brief and relevance to Diana; quality of the key personnel; and ability to deliver.

The design team will now develop their final design, which will be put to the Diana Memorial Committee, chaired by chancellor Gordon Brown.

Gustafson Porter's artistic vision for the fountain suggested "the creation of an oval water feature, which will most likely sit as a necklace across the existing contours of the site".

"Other features considered include the use of a colourful swatch of perennial plants, and shimmering metal artwork by Shelagh Wakely.

"It is planned that the view from the Serpentine will be more serene with inclined planes facing the view, which will provide places to sit, lie and sleep on sunny days. It will be surrounded by shallow water that children can paddle and play in whilst their parents take time out.

"On other occasions it will be a contemplative place, to ride the waves of a diverse world."

Jowell said the task of choosing a winning design had proven "enormously difficult".

"The committee's assessments of the finalists were referred to me. It was clear from these that the Gustafson Porter was the team which best met the selection criteria.

"I pay tribute to both the two leading designs. This was the judgement of Solomon. But there had to be just one winner. And now that we have one, we can move on to build a worthy memorial to Diana's life."

Rosa Monckton described the final decision as "the right choice to create an appropriate memorial to Diana".

The culture secretary had previously demanded that the £3 million fountain, which will be paid for from public funds, had to be finalised by the fifth anniversary of her death.

The project has been beset by delays and wrangling over the choice of design and the team which would create it - the idea for the memorial was announced September 1999.

Earl Spencer, brother of the princess, said there was strong public support for the memorial."It is clear from the vast number of people who visit Althorp and the enormous amount of correspondence I receive that there is a significant desire for a permanent memorial to my sister," he said.

But there are also opponents of the project including art critic Brian Sewell.

"One day, perhaps when William V is on the throne, he will quietly erect a monument to his mother. That we should all applaud. Let him decide, not a bunch of pushy nobodies," he said.

Committee members

• Rosa Monckton (Chair) - chief executive UK, Asprey and Garrard Ltd, chair of 'Kids' charity for disabled children; close personal friend of Diana, princess of Wales.

• Richard Cork - chief art critic of the Times.

• Edward Jones - architect whose projects include the Royal Opera House and housing in New Delhi.

• James Lingwood - co-director of the Artangel Trust, which commissions and produces major new works by contemporary artists.

• Sandra Percival - director of the Public Art Development Trust, which promotes commissioning, restoration and preservation of art in public.

• William Weston - chief executive of the Royal Parks Agency.

• Kim Wilkie - landscape design expert and member of the Royal Parks Advisory Board.

• Dr Giles Worsley - architecture correspondent of the Daily Telegraph.