Dubbed the Weymouth Eye, the attraction would feature a 50-person capsule that slowly rotates 360 degrees while rising to the summit, providing excellent views.
The project has an expected cost of £3 million and has a targeted completion date of before the Olympic Games next year.
Olympic sailing events will take place in Weymouth next summer and the observation tower is expected to be used to view them.
It will be a paid-for attraction and will operate throughout the year, utilising between two and ten members of staff, dependent on the season.
Merlin divisional director James Burleigh told the Dorset Echo: “We believe that this will generate much longer term interest in the town and what it has to offer and that the new observation tower would provide an important new attraction for the town.
“The design we have chosen and our experience in operating observation attractions also means that Merlin is uniquely qualified for such a fast start project and we are certainly hoping that the people of Weymouth support the scheme and enjoy the tower for years to come.”