Under the working title of the Reform Party, Mr Fayed is planning to enter the next election on a constitutional reforming platform, calling for a Bill of Rights, Freedom of Information Act and an elected replacement for the House of Lords.
Other key points on the Fayed political agenda are a slimmed-down, publicly- funded monarchy, referendums on devolution for Scotland and Wales and taking utilities back into the public sector.
His move comes hard on the heels of the launch by another tycoon, Sir James Goldsmith, of his Referendum Party. Exactly what Mr Fayed hopes to achieve by fielding candidates in crowded parliamentary contests - and whether he has candidates for the new party - remains unclear.
Mr Fayed owns the Ritz Hotel in Paris as well as other properties in the French capital and was described by a confidant yesterday as "a committed European".
His intervention will inevitably be seen as a rival to Sir James and his anti-federalist Referendum Party. The pounds 20m that Sir James has put into his organisation is more than matched by Mr Fayed's pounds 23m.
A Harrods insider said last night: "This is an intellectual exercise at the moment, but the effort he is putting in reflects his strength of feeling."
Mr Fayed's friends stress that he is not thought to be making his move in an attempt to have the citizenship laws redrawn and to obtain a British passport, for which he has campaigned, unsuccessfully, for years.
It appears to be an expression of his deep anger with the British legal system, constitution and ingrained class prejudice, stoked by what he sees as his own mistreatment by the Government over his takeover of Harrods.
As a former colonial citizen, he has said that he was brought up to respect Britain and its sense of fair play and old-fashioned values.
But a source close to him said last night that since settling here permanently and buying Harrods, Mr Fayed had discovered "a society in which the Government can roll over people and situations where they can conceal and distort the truth."
His idea, it was explained, was "to fund a movement to bring about reform which will create a fairer system of government".
One of Mr Fayed's closest political influences is thought to be Lord Lester, the Liberal Democrat human rights lawyer. The Harrods owner's new forum was described as "humanist" in approach by one source yesterday.
Rather than make a substantial donation to one of the three main political parties, Mr Fayed decided to plan his own. He has waged an increasingly bitter war with the Conservatives, decrying the Government's refusal to award him citizenship and the way he was disowned by the party despite having been a significant donor in the past.
Labour did not appeal because of the fear that once in power, the new Blair regime would come under fierce pressure from resurgent trade unions. Giving money to the Liberal Democrats was ruled out because the party was unlikely to have much clout after the next election.
By forming his own party, Mr Fayed is trying to build the platform he was seeking by acquiring or starting his own newspaper. Attempts to buy Today and the Observer, and to take over a news radio station were recently rebuffed - which has led him to think hard about funding his own party. The sum of money he has now put aside is similar to the amount he was thought to have offered for the Observer.
In the last two years, Mr Fayed has become a high- profile thorn in the side of the Conservatives, exposing Neil Hamilton, the former trade minister, as having accepted - and not declared to fellow MPs - free hospitality from him at the Ritz in Paris. Mr Fayed's accusations, made in a newspaper, forced Mr Hamilton's ministerial resignation.
Another former minister, Jonathan Aitken, was also alleged by Mr Fayed to have had part of his Ritz bill paid by the hotel - something Mr Aitken has always denied. A dossier of allegations about ministers accepting hospitality and cash from Mr Fayed has been sent to Sir Gordon Downey, the new Parliamentary Commissioner for Standards.
Mr Fayed's office did not return calls last night.
Saving the nation, page 2
Reform Party manifesto
Bill of Rights
n Freedom of information Act
n Abolition of the House of Lords
n An elected second chamber
n Slimmed-down monarchy
n Devolution for Scotland and Wales
n Re-nationalisation of the utilitiesReuse content