A former fortress and concentration camp on an island in Montenegro is set to be turned into a luxury resort and spa after a controversial planning proposal was accepted by the government.

Local news reports state that the five-star development – located on Lastavica Island, better known as Mamula, in the Adriatic Sea – will include a hotel complete with a marina, wine bar, restaurant, VIP terrace, open air dance floor, beach bar and spa.

Serbian architects Salt & Water and Juan Navarro Vallejo from the Sima Multimedia company in Gibraltar have designed and produced renderings for the reconstruction of the island’s ruined 19th century Austro-Hungarian fortress.

“The original idea was to completely preserve the existing exterior, known as one of the biggest and best preserved fortifications on the Adriatic Sea, and also as one of the most impressive Austrian architecture landmarks of Montenegro,” said the architects in a statement.

The project has been developed by the Swiss-Egyptian developer Orascom, which is also developing the nearby Lustica Bay into a luxury residential community. According to local reports citing Montenegro’s minister of sustainable development and tourism Branimir Gvozdenovic, Orascom have agreed a 49-year lease period for the island and will invest an initial €15m (US$16.2m, £11.3m) to restore the fortress.

Some local groups have protested the development due to the site’s violent history. The fortress was occupied by Italian forces under the rule of Benito Mussolini during the Second World War and thousands of local people were imprisoned there.

Last year, former United Nations secretary general Boutros Boutros-Ghali co-wrote an open letter to Montenegro’s government calling for the fortress to instead be transformed “into a facility and institution of peace and international cooperation” which would have “wide-ranging public support and consensus.”

He said: “Fort Mamula should come to symbolise the common goals and strivings of humankind, and should be a nursery and source of ideas, initiatives, solutions and actions of global public interest and for global public good.

“It should become an international landmark that Montenegro and its people would be proud of, one that would be an appropriate monument to their illustrious history and national aspirations.”

Orascom have insisted the project will be sympathetic to the local architecture and historical value of the island, and will include a special memorial room remembering the prisoners who were held there. The tourism ministry has said the development will preserve the site and must follow the conservation conditions set out in its laws for protecting cultural monuments.