The control of housing stock will be handed over to a new so-called Arms Length Management Organisations (ALMO).

The new organisations will be responsible for collecting rent, managing the properties and arranging repairs, but the council will still own the 3,500 houses.

Rent levels and housing policy will also remain in the hands of the council.

The �4.2m will be used to make improvements to council houses, to bring them up to what the government describes as the "decent homes standard".

The cash will be allocated over the next two years and the council has bid for a further �17m 2011.

But the allocation of further funding by the government will depend partly on the performance of the new management company.