Under a proposal announced by housing minister Margaret Beckett, councils would be able to keep the money raised through renting and selling homes to fund new developments.
At present, as much as 75 per cent is pooled into Treasury coffers instead of into local authority purses.
In unveiling the plans Beckett said she wanted local authorities to play a bigger role in the delivery of council housing: 'We are determined to keep house building going in the current climate, as the long-term need for more homes is not going to disappear'
'These new freedoms will encourage councils to play a bigger role in driving forward the delivery of new affordable homes for families in housing need.'
The government also recently announced plans to enable councils to bid for a share of the grants given to social landlords to subsidise the cost of new housing.