The scheme will use taxpayers' cash for the first time to take rows of "dead streets" in the North out of the hands of private landlords and make them attractive again.
The plans have been drawn up in response to ministers' concern at reports earlier this year that scores of terraces are being abandoned as vandals and drug dealers move in.
In Salford the problem is so severe that houses change hands in pubs for as little as pounds 500 and estate agents have even offered a "buy two, get one free" scheme. In Newcastle upon Tyne the council was so desperate to off-load blighted homes that it sold them at two for pounds 1, with prospective buyers agreeing to pay for repairs.
Although the South is experiencing a 1980s-style house price boom, many areas of the North are seeing price falls and whole communities locked into a spiral of decline.
Ministers have approved a programme drawn up by the Housing Corporation, the agency that gives pounds 750m a year to housing associations to provide affordable homes. Under the "New Tools" scheme, Approved Development Programme grants will be used to take advantage of low prices in the North and snap up empty homes for as little as pounds 5,000.
The terraced streets will be converted into rows of detached and semi- detached houses with gardens in the space that their neighbours used to occupy. The "two-into-one conversions", which were pioneered in Salford using council cash, knock together pairs of two-up, two-down terraced houses to make one detached home.
Families will be encouraged to move into the three-bed and four-bed houses to change the social profile of the streets and cut crime.
Four pilot schemes have been drawn up for pre-1919 terraces in North Tyneside, Manchester, Bolton and Rochdale, using pounds 4.5m of grants on 300 properties.
The scheme has been kept secret because its backers are worried that speculators will inflate prices once precise locations of streets are publicised.
Estate agents will be hired to pick different properties and try to ensure unscrupulous absentee landlords are not alerted to what amounts to this wholesale purchase of entire streets. The project is also contentious because it uses public money to pay private landlords and homeowners to take dilapidated stock off their hands. Previously, compulsory purchase orders were used but such an approach is now deemed slow and inefficient.
In some inner cities the privately owned terraces have proved even more derelict than council estates and ministers have decided the state should intervene where the free market has failed.
In a leaked letter to the Department for the Environment, Transport and the Regions, the corporation's chief executive, Anthony Mayer, admits the scheme is "treading on new ground" but says that doing nothing is not an option.
"Failure to adequately maintain poor quality homes past their sell-by date is resulting in abandonment and blight which in turn acts as a catalyst for further abandonment and blight," he wrote.