It is a huge amount of money for the northern Swedish club, who play in the second-tier of Swedish football and normally operate on a budget of around SEK 22 million a year. But both sides hope to profit from the deal, with Libya aiming to use football as a goal to unite the country in the post-Gaddafi years.
The town of Östersund in the northern county of Jämtland is known for its cross-country skiing. All of Sweden's top cross-country skiers competing in next month's Winter Olympics, live and train in the town. But the local football club could be about to prove that the northern outpost is more than a one sport town.
Formed relatively recently in 1996, Östersund played for the first time in the second tier of swedish football last season (Superettan), and it has its sights set on promotion to the the top division and eventually European competition. The dream is to be fuelled with an injection of oil money from Libya, which is promising to sink SEK 500 million into a five-year project which will involve over 1,000 of its footballers aged between 18 and 20 to live and train at Östersund and receive a full-time education.
Östersund's Club Secretary, Lasse Landin, told Radio Sweden that Libya is looking to benefit from Sweden's democratic principles:
"This is a democratic project. It is teaching those youngsters from Libya about how it works in a democratic country like Sweden. Football is very big here but it is nothing compared to how it is in Libya. So the government in Libya wants to use football as something to unite the country. It wants its' youngsters to go to a country which is known for its democracy, which has not been involved in a war for over 200 years and is not corrupt."
The 18-to-20 year olds will not be only playing football. Lasse Landin says they will also get an all-round education:
"They will be in school for nine months and they will get lessons in English, IT and sports science where they will learn how sport is organised in a democratic country. Sport and football is like a mirror to the rest of Swedish society," the club secretary told Radio Sweden.
The Libyan state has hand picked 120 players, and representatives from Östersund will fly next week to Libya to choose 60 players from that group to bring back to Sweden to take part in the first year of the project, beginning in March. If that is a success, 250 youngsters every year will come to Östersund. The SEK 500 million will go to meeting the costs of board and lodgings and teacher salaries, with an annual SEK 10 million going to the football club itself, which is worth half the club's annual budget.
A delegation from Libya came to inspect Östersund last year and were impressed how first-team players from other African countries had adapted to the cold climate.
Östersund, which is managed by Englishman Graham Potter, has been visited in the past for pre-season training by Roberto Martinez and his former sides Swansea and Wigan and it is hoped that he will take his new club Everton to Sweden this summer.