The organisation - the Office for Tenants & Social Landlords - will have the powers to back up tenants of Registered Social Landlords when they report poor service.
This will replace the role currently played by the Housing Corporation. It will aim to ensure that landlords provide a good service to their tenants, complementing the role of the Homes & Communities Agency in delivering 30,000 new affordable homes a year.
The new watchdog is the key recommendation from the Cave review of social housing regulation.
'Less red tape'
Under the new regulator, good social landlords will be freed from red tape, allowing them to concentrate on getting housing management services right and building more homes. Tenants and local councils will be able to trigger penalties by bringing concerns to the watchdog's attention.
Housing minister Yvette Cooper said: "If housing associations are doing a good job they should have less red tape. But if tenants aren't getting a good deal, we need much stronger action."
Audit Commission chief executive Steve Bundred said:
"We welcome the fact that there is now a clearer direction on the regulation of social housing. Affordable housing is an issue that matters enormously to local communities".
The commission would work closely to ensure the success of the new arrangements, he said.
"As we develop comprehensive area assessment it will be vital that housing issues are at the heart of the drive to improve local people's quality of life."
The Local Government Association said that a single system for regulating the performance of the social-housing sector was in the best interests of tenants.
Environment board chair Paul Bettison (Con) said: "It is also particularly pleasing the government has listened to our arguments that the regulation of council landlords must operate as part of the new performance framework proposed for local government.
Two-year implementation period questioned
But the LGA questioned if it should take as long as two years to work out "with the unfortunate consequence that the new regulatory regime will leave out council tenants and their inclusion will be dependent on further subsequent legislation".
Cllr Bettison said: "The most important aspect to regulation is how effective it is, rather than the identity of who is conducting it. However, we are concerned that the creation of a new independent regulator will increase the risk that the links between housing and wider area assessment will not be as well connected as they need to be."