The new association, known as Banbury Homes, will be a subsidiary of the long established Shaftesbury Housing Association.
Envrionment minister Robert Jones has also approved an agreement under which the council will gradually transfer other properties to Banbury Homes as they become vacant over the next five years.
'I am delighted to give Cherwell DC consent to make these transfers. The tenants in the initial transfer will benefit from a guarantee that their rents will not increase annually by more than one per cent above the rate of inflation until April 2000.
In a ballot in March 1994 a majority of the council's tenants voted against transfer, but about 1,000 tenants in Banbury and a slightly smaller number in the rest of the district voted to transfer to Banbury Homes and Cherwell Valley Housing Association respectively.
The latter proposal is proceeding on a slower timetable and an application for consent has not yet been made.
Banbury Homes will pay the council nearly £11m for the initial transfer. Receipts from future sales under the right to buy will be shared between the council and the association.
The announcement brings the number of approved large scale voluntary transfers (LSVTs) of local authority housing stock to 37, involving nearly 163,000 homes.
Gross receipts from these sales will, with the Banbury transfer, be over £1.4bn.