Ruskin College, which three years ago ran into protests over plans to sell its historic buildings in central Oxford, is now at the centre of a new £16m development deal. Next month, the lease of two of its modern Worcester Place buildings will go on the market - a 40-bedroom student block and the Kitson Library - at an asking price of £4.5m.

Mike Watson, of agents Cluttons, described the deal as "probably the largest in central Oxford in 2007". Because of planning constraints, the buildings must be used for education or health. The money raised will help Ruskin to develop its 20-acre Old Headington site in a £16m scheme.

Ruskin principal Prof Audrey Mullender said: "The bottom line in the row three years ago was that neither students nor staff wanted to move out of Walton Street. This scheme, funded by the Learning and Skills Council, enables us to upgrade without moving out.

"This is the most exciting development at the college for 60 years. It will also mean that people in Old Headington will be able to enjoy our lovely Ruskin Hall campus, since our restaurant will be open to the public."

However, Prof Mullender did confirm that the college headquarters would move to Headington from its imposing central Oxford building, built in 1912 to provide education for the working classes. The Walton Street building will be used for short courses.

She would ideally like the Worcester Place buildings to be leased by another educational organisation, such as a traditional college of Oxford University.

She said: "It would be wonderful if there was a body out there that could make this not just about money, but also about opening up new links with an institution like ours, which reaches the parts of society that others cannot.

"Although Ruskin College is not part of the University of Oxford, our students have a formal right to attend university lectures and we have a long and warmly cherished relationship with Oxford that could move forward in a really interesting way through this property development."

She said the headquarters would probably move to Headington from 2009, and the majority of its long courses - in subjects ranging from creative writing to women's studies, from history to youth and community work, and from law to sociology, politics and economics - would be run there. She added: "At the moment, the Headington site is one of Oxford's best-kept secrets."

Almost a third of the money due to be spent in Old Headington over the next three years will go on a showcase new library and teaching area next to the grade II listed Rookery.

Ms Mullender said: "We have an opportunity here to combine what we teach with what we do - we provide courses in sustainability and now aim to build a library to complement the beautiful Rookery. The new building, replacing the 1960s extension there now, will be properly sustainable."

On the board of the college is Oxford city councillor Sue Roaf, author of Adapting Buildings and Cities for Climate Change. She lives in an eco-house in north Oxford and will be consulted at every stage of the new development.

There are also plans to restore a separately-listed "crinkle crankle" wall, a zig-zag 18th-century structure fencing off the former mansion's kitchen garden, in which the new restaurant will be built.

The college now has 500 students (full-time equivalent), of whom 140 live in college, and new student rooms will be built to the east of the Rookery.

In addition to the Rookery, acquired in 1946, the Old Headington campus also contains another grade II listed building, Stoke House, acquired in 1962. Stoke House has already had £330,000 spent on it. It reopened in October and will be used for new BA and MA courses in international labour and trade union studies and to house the newly sponsored Webb Institute for Leadership in Democracy.

The main Ruskin College building in Walton Street was built in 1912 with money donated by the wife of one of its American founders, Amne Vrooman. It will continue to provide short residential courses and weekly drop-in programmes.

Ruskin's mission to provide education for "ordinary" people who might not have passed many exams in the past was inspired by the writings of social reformer John Ruskin. Ruskin once took a group of his Oxford University students, including Oscar Wilde, to build the road at North Hinksey, in a bid to introduce them to manual labour.

The college, originally called Ruskin Hall, was set up in St Giles but moved to Walton Street with a revolutionary notion of providing residential education to working men (and working women from 1919).

Prof Mullender said: "We are still providing the opportunity of education for ordinary people that they simply wouldn't have otherwise. And many students love the Headington site.

"Chatting with a student from east London recently, he told me that he had never before woken up in the morning and looked out at trees and green grass like at Headington."

The scheme is subject to final approval from the Learning and Skills Council, which Prof Mullender hopes to receive before the end of January.

She is no stranger to planning and funding issues, having been a professor of social work at Warwick University and sat on committees while major projects were going through.

She said: "I hope I have simply used common sense and talked to everyone involved to make sure I am providing what they want. I think this is the end of a ten-year period of planning blight both in Walton Street and Old Headington."