LONDON—Chevron Corp. CVX -0.56%will invest billions of dollars developing a giant offshore project in a remote and technically challenging corner of the U.K. North Sea, the latest sign major oil firms are being drawn back to the region as efforts to soften a tax regime begin to bear fruit.

The move was hailed by U.K. Energy Minister Charles Hendry, who said the “pioneer development” had the potential to unlock as much as a fifth of the country’s remaining oil reserves and create more than a thousand jobs.

Chevron’s decision to start allocating the main engineering and design contracts for the Rosebank project, located in rough seas more than a hundred kilometers northwest of the Shetland Islands, comes three months after U.K. Chancellor George Osborne announced a raft of tax measures aimed at encouraging renewed investment in one of the world’s older oil and gas basins.

A surprise tax rise on profits from oil production last year was greeted by industry indignation and warnings that North Sea investment would be threatened. That prediction appeared to gain credence when output from the basin fell 18% in 2011.

In an apparent response to the criticism, Mr. Osborne in March announced tax allowances for the type of harder-to-access deep-water field that Chevron intends to develop at Rosebank.

“The efforts by the U.K. government, to stimulate development in this important region, have enabled the progression of this project and underline the importance of industry and government collaboration,” said Brenda Dulaney, managing director of Chevron’s European exploration-and-production division.

“A successful Rosebank development will deliver positive contributions to the U.K. economy through employment, production, tax revenue and enhanced energy security for the country,” said Ms. Dulaney.

The Rosebank field, discovered eight years ago, is believed to hold up to 240 million barrels of recoverable oil. The project is being jointly developed by operator Chevron, which holds a 40% stake, Norway’s Statoil STO +0.09%ASA, Austrian firm OMV AG OMV.VI -1.31%and Denmark’s DONG Energy.

The company declined to say how much it expects Rosebank to cost, but independent estimates have put the total bill somewhere between $6 billion and $8 billion, split between the partners.

Unlike the central and southern North Sea, where oil and gas production has taken place since the 1960s, fields like Rosebank lie in an area on the edge of the U.K. continental shelf, prone to extreme weather conditions and water depths.

Environmental groups have voiced concerns about this type of riskier drilling, saying that oil spills in these more remote waters would be harder to stem and clean up.

Chevron has already faced protests from activists over its own West of Shetland activities. In 2010, Greenpeace members attached themselves to the Stena Carron drill ship to prevent it setting off for the Lagavulin oil field.

Yet with the U.K.’s hydrocarbon reserves dwindling and the economy still in the doldrums, supporters have argued that the lure of secure energy supplies and a boost to employment are reasons for these developments to continue.

Chevron’s investment is expected to lead to the creation of around 300 direct jobs, with up to 1,000 more in the supply chain and wider economy, the company said.

“It is a boost for both the U.K.’s energy security and the economy,” said Mr. Hendry.

Separately, the U.K. Treasury Monday released details of plans to create formal guarantees for the cost of decommissioning old offshore platforms, a policy aimed at encouraging further investment in the North Sea.