The Ground Beneath Her Feet, due for publication in 1999 will be a story of "love, death and music". It will be the seventh novel by the author, who has lived in hiding since becoming the subject of a fatwah in 1989. Jonathan Cape have bought the rights to publish the book at a sum rumoured to be pounds 750,000.
Mr Rushdie said it would be a departure from his previous novels: "It's a love story...I felt this book brought what I'd previously been doing to a point. One of the things I most liked was being able to write a series of love stories and put a love story right in the centre."
Mr Rushdie described how his involuntary confinement had not affected his ability to write.
"I more or less do it like an office job," he said. "And I'm not very good early in the morning."
He denied that living under a persistent threat had affected the tone of his writing. "Everyone told me that The Moor's Last Sigh has been the funniest thing I've ever written," he says.
Mr Rushdie, who on Thursday night gave a sell-out talk in Oxford, yesterday conducted his first open-book signing in seven years, autographing paperback copies of his novel for a queue of approximately 200 fans at Dillons book store in Gower Street, central London.
Staff at the bookstore said that at one stage the book, which has sold more than 130,000 copies in hardback, was the only thing being bought in the shop.
He spent an hour chatting to customers and posing for snaps under the watchful gaze of four security men. The signing was the first without tickets since the fatwah was issued, following publication of his book The Satanic Verses.
Despite the apparently relaxed tone of his public appearances, Mr Rushdie said he had been advised that the fatwah was still very much in place. The European Union campaign to remove the threat against him was still being pursued "as enthusiastically as ever," he said.
"But I think it's important to show that the business of literature is not derailed by this kind of threat and that writers will write, booksellers will sell, and readers will read, and that goes on," he said.
Also at the signing was Caroline Michel, who published Mr Rushdie's paperbacks at Vintage. She revealed that the author was also busy editing a compilation of Indian writing from the last 50 years, to coincide with the 50th anniversary of Indian independence. The Vintage Book of Indian Writing 1947-1997 will be published next summer.