The first new council house provision in decades will be targetted first at areas of most need, including Dunfermline, Inverkeithing and the West Fife villages.
A report approved by the housing and communities committee gave the go ahead for the Council to start formal negotiations with Fife Housing Association Alliance to have them act as development partners for Fife Council in coming up with a plan to deliver a new Council house building programme.
Committee chairman Councillor Brian Goodall said: "This is a great day for Fife. Improving access to housing is a top priority."
"As a former Council house tenant and tenant activist myself I know you cannot overestimate the vital importance of good quality social housing.
"Good homes strengthen and help build communities – it is such a privilege that we are now able to take this step forward after years of inertia," added Cllr Goodall.
Committee vice-chairman Councillor Donald Macgregor said: "Fife aims to be a great place to live work and visit. We need to ensure there are opportunities to achieve this in all three and the provision of good quality housing is a key part of this."
"Fife Housing Association Alliance has an excellent track record in delivering affordable housing, and has clear potential to be the ideal partner to assist Fife Council develop and deliver a new build housing programme.
"Any new housing produced would target areas of greatest need, and where greatest positive impact on the local housing situation could be achieved. Now the hard work starts to ensure we deliver through this developing arrangement," added Cllr Macgregor.
The Council will also look to see what opportunities there are to start negotiations with the private sector to identify the potential for the Council to intervene in the housing market – for instance to buy private developments unsold as a result of the credit crunch.
Head of housing Derek Muir said the next step was to bring a further progress report to the January meeting of the committee.
This will also include confirming the availability of funding to confirm the Council's plans to start new house building.
In his report, Derek Muir said there was a requirement for almost 5,000 new affordable homes in Fife, and at present, 250-300 units are provided each year.
He said: "It is anticipated that the Scottish Government will soon end the right of people to buy their council homes in support of allowing new council house building plans.
"This would open up opportunities for us to put the new homes in the broader priority areas of east and west Fife as well as our pressured areas – St Andrews, the East Neuk, Dunfermline, Inverkeithing and West Fife Villages – where the right to buy council homes is currently suspended," said Derek.