China last year inaugurated its first overseas military base in Djibouti, near one of the world's busiest shipping lanes, deepening Indian insecurities and pushing it to gain a foothold in the region.
The agreement signed in the Seychelles' capital of Victoria last weekend provides for India to develop the airstrip and jetty on the Assumption islands, near another shipping route.
"India is helping us free of charge, and the facilities and activities will entirely be at the control of Seychelles and will be conducted as per the laws of Seychelles," Barry Faure, its secretary of state for foreign affairs, told Reuters.
But nothing had been leased to India and the new facilities would help Seychelles better control its exclusive economic zone of 1.3 million square kilometres, Faure added.
First announced during Indian Prime Minister Narendra Modi's trip to the islands in 2015, the pact faced problems, as critics who feared a handover of territory demanded that the Seychelles government make clear the terms of India's role.