The council will meet the cost of clearing the site, which includes the demolition of the gas holders at Blundell Street, using grants and Government funding from the New Homes Bonus, aimed at encouraging house building.
The first phase of the site preparation work funded by the council is due to finish by September and the whole contract is due to be completed by Christmas.
Then developer Hollinwood Homes can start work on the first houses in 400-home Foxhall Village scheme next to Blackpool FC’s stadium.
The site was originally earmarked for a £100m college but the Learning Skills Council ran out of money and it fell through.
Councillor Gillian Campbell, cabinet member for housing, said: “There is a lot of important preparation to be done before building can get underway to make the site fit for housing, due to part of the site being a former gas works.
“As a result we have appointed an experienced, Environment Agency-approved contractor to ensure work is done in an environmentally sensitive way.