More than 1,800 jobs are expected to be created from a £100m shot in the arm to local businesses carrying out home improvements.
The pioneering scheme will then be rolled out to up to 9,000 homes with the eventual aim to include all of the city’s 260,000 social homes.
The pilot retrofit project is designed as a beacon for both investors and other social housing providers to show the vast potential for green deal investment.
Housing minister Grant Shapps said: “I’m delighted to announce for the first time, a large scale project to upgrade thousands of social homes.
“With homes counting for a quarter of all UK emissions, we must and can do more to make our homes greener. That’s why we’re nailing down a zero carbon approach so tough new green standards can come into effect from 2016.
The cost of improvements such as solid wall insulation and better heating systems will be paid upfront by the housing association.
Tenants will then meet this cost through the money they save on energy bills, which could be up to £500 per year.
Under the Green Deal, which will begin next year, the expected cash savings for homeowners and tenants will be greater than the costs to upgrade the property over the lifetime of the improvements.
Manchester’s pilot is being used as a model for upgrading the country’s 3.8m households in the social rented sector, which account for nearly 20% of all households in England.
By 2015 up to 100,000 green deal workers could be employed nationally in the effort to upgrade Britain’s homes.
Currently around 27,000 work in the insulation industry.
Legislation to start the process of establishing the green deal is currently before Parliament.