The Child Abuse Image Database (CAID) will help UK police forces co-ordinate investigations into abuse.
Huge growth in the number of abuse images circulating online means forces need help analysing what they seize.
The database is part of a massive international effort to classify images and track down victims.
The need for CAID has arisen because such action against abusers and websites often leaves police forces needing to categorise hundreds of thousands and sometimes millions of images.
Many of these images will have been seen before as the trade in abuse content has led to them being duplicated many times. This can make it difficult for investigators to pick out novel images that could lead them to victims that have not been seen before.Project Vic
In a statement, policing minister Mike Penning said CAID was "a watershed moment in this government's drive to stamp out the despicable crime of online child sexual exploitation".
"The outcomes will be life-changing, and in some cases life-saving," he said. "That is how important this database is."
The CAID database is also part of a larger international effort called Project Vic that seeks to classify images held by forces around the world.
Richard Brown from the International Centre for Missing and Exploited Children, which is helping co-ordinate Project Vic, said the two initiatives were using the same protocols to ensure images could be swapped back and forth easily.
Seven other countries were already helping with Project Vic and more were expected to sign up soon, he said.
"It is groundbreaking for law enforcement, tool providers, non-profits and industry to all stand together and agree on the need to standardize the approach to such egregious crimes," Mr Brown told the BBC.
CAID is being built by tech firms NetClean, Hubstream and L-3 ASA and is set to be working by the end of 2014.
As well as improving collaboration among police forces, it is hoped that the database will save forces more than £7.5m by cutting the time it takes to conduct investigations.