The Orange service will be the first of its type to enable location of a mobile phone user by triangulation.
Current services simply locate a user by which phone cell they are in, which gives accuracy from 100m to 30km depending on cell size.
The new service gives a position accurate to within 50m-100m in the mobile cell by measuring time or angle from the base station.
The service will, however, still be dependent on the user keying their precise location into maps shown on the handset.
It will enable users to locate nearby retail outlets, restaurants, banks and be given instructions on how to get there. It will also have a "buddy finder", allowing them to discover where their friends are.
However, industry watchers believe it will be some time before the location-finding methods, bandwidth and sophistication of back-end systems will be able to deliver a highly accurate service without intervention from the user.
Dario Betti, an analyst with Ovum, believes sophisticated and precise location-based mobile phone services are being held back by the structure of the market.
"The technologies exist and demand is out there. But the network operators have not been good at developing the necessary infrastructure - they have tended to focus on mass-market applications that do not need too much tailoring," he said.
Orange recently signed a deal with Webraska, a supplier of software linking location-finding technology with business information.