The last surviving battleship of the First World War is to be transformed into a £12m (US$19.3m, €15.1m) floating museum, dedicated to the history of the vessel.

With the majority of funding supplied by the Heritage Lottery Fund (HLF), the currently derelict HMS Caroline will be turned into a visitor attraction in time for centenary commemorations of the 1916 Battle of Jutland, which took place off the coast of Denmark.

£845,000 (US$1.4m, €1m) has been granted by the HLF as an initial commitment to HMS Caroline, which is currently docked in Belfast. Meanwhile a £1m (US$1.6m, €1.2m) grant has also been secured from the National Heritage Memorial Fund for vital repair works to the ship, which has come dangerously close to sinking on several occasions.

The museum will sit alongside a variety of maritime attractions in Belfast's old shipyards, including the Titanic Belfast museum, which opened in 2013.

Caroline was commissioned on 4 December 1914 and served in the North Sea throughout the First World War. In 1916 the ship fought in the Battle of Jutland – the largest naval battle and the only full-scale clash of battleships in the First World War. The ship was eventually decommissioned on 31 March 2011, after 97 years in service.

The main highlight of the attraction will be the ship's bridge, which will be restored with its original compasses and telegraphs. Elsewhere the engine rooms will be refurbished with the original turbines still in position, while elements of the living quarters will be shown as they were 100 years ago.