Liverpool Mutual Homes and Liverpool City Council are to spend £4m refurbishing 74 properties in the 1970s Boot Estate in Norris Green.
The homes were scheduled for demolition more than a decade ago under controversial plans for neighbourhood renewal and are now mostly derelict.
Funding for the project will also come from CESP, the Community Energy Saving Programme, which uses subsidies from energy companies to pay for low carbon housing.
There will be new high efficiency boilers, central heating systems and 'A' rated double glazed windows and doors installed. Lofts and roofs will be insulated, electrics re-wired and dual-flush cisterns and water efficient taps installed to reduce water consumption. The energy efficient upgrades will result in lower fuel bills for new and existing customers and CO2 emissions will be cut by an estimated 1,950 tonnes per year.
The properties are all three-bed homes in Broad Lane and Winskill Road and part of LMH's Ellergreen development.
Following a tender process, contractor Mitie won the work, which is due to be completed by October 2012.
Steve Coffey, LMH chief executive, said: "The properties sat empty and neglected for far too long so it is fantastic to be able to announce we are on-site and work has started.
"In the 1970s the estate was a desirable place to live with a fantastic close-knit community spirit and we are really looking forward to recreating this type of neighbourhood once again.
"The properties are situated next to Norris Green Park and will form an impressive street scene and neighbourhood that local people can be proud of once the work has been completed.
"The work we have carried out on similar properties on the Daneville estate in Clubmoor shows what can now be achieved using modern building techniques."