MARGARET Hannah Olley's Art Trust will establish a $1 million extension to the Tweed River Art Gallery in the much-loved late-artist's name.

Miss Olley's studio, elements of her home and collections will be re-created in a "suitable venue" as per her final wishes.

Gallery director Susi Muddiman said it was an "incredible" privilege and "honour".

"This is a once in a lifetime opportunity for the gallery," Miss Muddiman said.

"Margaret's childhood years spent in the Tweed also add poignancy to the centre.

"It is very exciting news and I know the centre will be strongly supported by our visitors."

Trustee Philip Bacon AM said Miss Olley's interest in regional galleries and the Tweed's in particular was crucial to her decision.

Mayor Barry Longland said the gift was a nod to the gallery's first-rate regional reputation.

"The recent success of the 2011 Archibald Prize, with its winning portrait of Margaret Olley attracting thousands of visitors from outside the region, points to the high regard held by the public for one of Australia's most admired artists.

"I'm sure this honour comes in no small part through the deep connections and strong relationships our gallery director, Susi Muddiman, has developed in the art world, as much as the strength of the Tweed River Art Gallery as a venue and the Tweed's link to Margaret Olley's childhood."

Miss Muddiman is looking forward to working with the trust and council to realise Miss Olley's vision.

"The Margaret Olley Centre will include a re-creation of Miss Olley's studio, an exhibition space and an education centre.

"It will be an honour for the gallery to show Margaret's exceptional paintings to visitors from far and wide," she said.