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Around 600 MoD financial management staff will move to the building in late 2008 from nearby Mersey House.
The deal also secures the future of the Western Approaches war museum which housed the Battle of the Atlantic control centre during World War II.
Exchange Flags has lain virtually empty since being acquired by Mr Davies, the former owner of Aintree Racecourse, 20 years ago.
In 2002 he handed back £4.5m received as a City Challenge improvement grant for the complex after an out-of-court settlement.
The businessman also owned the former Post Office site in Whitechapel. That too was left empty for several years until it was sold to Manchester developer John Milligan who created the Metquarter designer shopping development.
Following a legal battle with Liverpool City Council in 2002, Mr Davies also lost the right to develop Chavasse Park, now the site of the £1bn Grosvenor retail development.
Simon Parker, managing director of UK Land and Property, said last night: “The fact that the Ministry of Defence has seen the potential in Exchange Flags and its location is extremely gratifying.
“This is further substantiated by the amount of floor space completed and under offer in Horton House. Having completed the refurbishment of Horton House our efforts now turn to Walker House to help further establish Exchange Flags as the gateway to the city’s new business district.”
UK Land is currently spending £7m of the refurbishment of Horton House, part of which has already been let to Liverpool law firm Brabners Chaffe Street.
Mr Parker also pledged to improve the Western Approaches attraction, probably one of the most important locations in the country’s naval history.
He added: “We are committed to retaining the Western Approaches war museum as an operational museum, recognising the crucial operations of the Battle of the Atlantic and in tribute to the important role of the city and the building in World War II.
“An improved museum will raise the profile of the building and maintain an active frontage to Rumford Street. Working with the current curator we will be undertaking physical improvements to raise the profile of the Museum and Exchange Flags for Liverpool’s year in the spotlight in 2008 and beyond.”
Development funding for the acquisition is being provided by the Anglo-Irish bank. Commercial property agents Alan Murch of Keppie Massie and Charles Hubbard of Edmund Kirby brokered the deal. Law firm Goodman Harvey acted for the purchaser.
Jim Gill, chief executive of Liv- erpool Vision, said: Š"It is impos- sible to overestimate the import- ance of a vibrant, fully function- ing Exchange Flags to the health of the commercial district and the working of the city because it is such a crucial link between the expanding business quarter around Old Hall Street and the Liverpool One shopping area.Š
“The joint venture already had great success with Horton House. The Ministry of Defence's decision to relocate to Walker House con- firms that success and will no doubt help attract other high-pro- file occupiers to the development."
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