In 1966, the British government purchased the privately owned copra plantations and closed them down. Over the next five years, the British authorities forcibly and clandestinely removed the entire population of about 2,000 people, known as Chagossians (or Ilois), from Diego Garcia and two other Chagos atolls, Peros Banhos and Salomon, to Mauritius (see Depopulation of Diego Garcia). In 1971, the United Kingdom and the United States signed a treaty, leasing the island of Diego Garcia to the American military for the purposes of building a large air and naval base on the Island. The deal was important to the United Kingdom, as the United States agreed to give them a substantial discount on the purchase of Polaris nuclear missiles in return for the use of the islands as a base. The strategic location of the island was also significant at the centre of the Indian Ocean, and to counter any Soviet threat in the region.
Work on the military base commenced in 1971, with a large airbase with several long range runways constructed, as well as a harbour suitable for large naval vessels. Although classed as a joint UK/US base, in practice it is mainly staffed by the American military, although a British garrison is maintained at all times, and Royal Air Force long range patrol aircraft are deployed there. The United States Air Force used the base during the 1991 Gulf War and the 2001 war in Afghanistan, as well as the 2003 Iraq War.
During the 1980s, Mauritius asserted a claim to sovereignty for the territory, citing the 1965 separation as illegal under international law, despite their apparent agreement at the time. The UK does not recognise Mauritius' claim, but has agreed to cede the territory to Mauritius when it is no longer required for defence purposes. The Seychelles also launched a sovereignty claim on several of the islands.
The islanders, who now reside in Mauritius and the Seychelles, have continually asserted their right to return to Diego Garcia, winning important legal victories in the English High Court in 2000, 2006 and 2007. However, in the High Court and Court of Appeal in 2003 and 2004, the islanders' application for further compensation on top of the £14.5 million value package of compensation they had already received was dismissed by the court.
On 11 May 2006, the High Court ruled that a 2004 Order in Council preventing the Chagossians' resettlement of the islands was unlawful, and consequently that the Chagossians were entitled to return to the outer islands of the Chagos Archipelago. On 23 May 2007, this was confirmed by the Court of Appeal. In a visit sponsored by the British government, the islanders visited Diego Garcia and other islands on 3 April 2006 for humanitarian purposes, including the tending of the graves of their ancestors. On 22 October 2008, the British government won an appeal to the House of Lords regarding the royal prerogative used to continue excluding the Chagossians from their homeland.