A decision to close Britain's last military hospital and transfer psychiatric patients to an exclusive private health group came under fire last night.

The Ministry of Defence has confirmed that the Duchess of Kent Military Psychiatric Hospital, in Catterick, North Yorkshire, will close in April 2004 after its in-patients have been moved to the 15 Priory clinics around the UK.

A three-year contract, worth between £3m and £5m, has been signed by the MoD and the Priory Group, whose celebrity clients have included Paul Gascoigne, Kate Moss and Michael Barrymore.

The hospital's closure will mean that there are no dedicated Royal Army Medical Corps military hospitals left in the country, nearly 200 years after Britain's first organised medical service was set up when the Duke of Wellington was fighting Napoleon's forces in Spain and Portugal.

The decision to close the hospital has angered Catterick residents, many of whom have campaigned for years to keep services going at the hospital.

Richmondshire district councillor for Catterick, Tony Pelton, said it was another blow for health services in the area.

He said: "We have heard that the building could be demolished. When there is such pressure for respite care and such a pressure for elderly people's provision, to close a hospital building is highly questionable.

"The loss of this hospital is a major blow and it is definitely a backward step."

The MoD has an estimated 350 patients a year suffering from a range of mental health issues including anxiety, depression and alcoholism who will now be treated by the Priory Group.

A spokesman for the MoD said: "As part of a review carried out, it was recommended that the Duchess of Kent Military Psychiatric Hospital should close with out-patient care being provided by local providers of mental health care and in-patient care being contracted out to independent health care providers.

"We have always said the hospital would not close until alternative facilities were available. It is the final piece of the jigsaw.

"It is the first time we have awarded a mental health care contract to an independent health care provider."

Liberal Democrat defence spokesman Paul Keetch said: "It begs the question whether we should be investing more in the service rather than paying millions to a facility for the rich."

It is believed that the hospital building will be handed over to the Crown Estates for a sale that could raise several million pounds, but it is not known if it will then be demolished.