The formation of the research institute was welcomed by the Chancellor of the Exchequer George Osborne, who said this initiative will encourage technology firms to continue investing in the UK and make it a "world class research base".
"It is investments like this that will help us put the UK on the path we need to take to create new jobs, new growth and new prosperity in every corner of our country," the Chancellor said.
"The UK tech cluster in East London has grown from 200 companies back in 2010 to 700 today [including] Google, Amazon, Facebook, Cisco and of course Intel. What we need as part of that cluster is a world class research base and that is what we are talking about today."
The Chancellor did not go into specifics about have many jobs will be created by the scheme, but the ICRI will initially employee 12 researchers who will gather data from sensors embedded throughout London, starting with the Olympic Games this summer.
The real economic benefits of the institute are likely to be seen in the next five years, with the predictions from UCL suggesting this will help double the GDP of London over the next 20 years.
By creating a connected city, Intel hopes small businesses emerge to create patentable ideas and products to solve the challenges that are raised.
It remains to be seen what privacy concerns arise, but Intel is confident that citizens will be willing to hand over information to companies they trust.
"We're all walking about with sensors [smartphones], we just need to connect them," Rattner added.
Additionally, Intel announced it will be extending its European R&D efforts with the launch of nine centres in UK. The R&D sites will be spread across the country, with confirmed locations including London, Brighton, Swindon and Aylesbury.
Researchers will focus on security and high performance computing.
Intel Labs Europe currently consists of over 40 labs and employs
3700 R&D professionals. It is unclear how many additional employees will be hired at this stage.
