Work on a fourth housing development at the east Manchester site will start in November.
The Homes & Communities Agency has confirmed £936,000 funding is being put towards building 17 homes on land off Cardroom Road and Weybridge Road.
The project is being delivered by a partnership consisting of Great Places Housing Group, developers Urban Splash, urban regeneration company New East Manchester, the HCA and the North West Development Agency.
Great Places said the working name for the scheme is The Guts, derived from the site's central position in the 'belly' of the New Islington masterplan.
The housing group said the development will be available for all remaining residents previously living in the area and who want to return, as well as providing new and affordable opportunities with HCA products including Rent to HomeBuy and New Build HomeBuy for people wanting to move to New Islington.
The Guts is the eighth scheme to have been developed at New Islington, including Great Places' Islington Square, completed in 2006, and its Guest Street development, in 2007.
Urban Splash developed the Chips apartment block last year and a public park, Cotton Field, which was funded by the HCA, has been completed, as well as a new health centre.
Great Places said new pathways and cycleways into and around the area, funded by NWDA, will better link New Islington with the city centre. A new bridge will provide a direct link with Ancoats and a new marina, allowing canal boats to enter and moor there for the first time.
The Guts is designed by architects MAE and is expected to reach the Government's code for sustainable homes level three. The development is due to be completed late next year.
Matthew Harrison, deputy chief executive and director of development at Great Places, said: "Islington Square and Guest Street are bold, striking developments and we want our third and final site to have a similar impact.
"The residents coined the name The Guts and it's stuck! During consultation, they were really keen to be right in the middle of New Islington so that's where we're siting these homes."
Tom Bloxham, chairman of Urban Splash, said: "This is the eighth project so far in New Islington with even more to come.
"Each of the projects shares the same vision of architectural excellence, attention to detail, true sustainability and variety. We are making real progress and New Islington is fast becoming one of the most interesting parts of Manchester."