Under the terms of the scheme, council tenants will be eligible for a discount on their homes of as much as £75,000, with homes sold replaced by new properties for affordable rent.
Prime Minister David Cameron said he wanted the scheme to help people achieve their dream of homeownership.
Discounts will depend on how long they have been a tenant.
This will mean, for example, that:
Someone in Birmingham who had been a tenant for fifteen years could buy their £90,000 flat with a discount of £63,000 compared to £26,000 previously - almost trebling their discount; and in London, a tenant for five years buying a flat worth £160,000 would receive a discount of £75,000 - more than four times the previous cap of £16,000.
The Department for Communities and Local Government (DCLG) said that the move would reverse years of 'declining discounts for tenants'.
Fewer than 3,700 sales were made last year compared to a peak of 84,000 less than 10 years ago, it added.
Councils will be able to sign an agreement with the Government for using the receipts from sales to build new affordable homes in their area.
"I'm delighted to announce that from today these miserly restrictions on discounts are history, and tenants will once again receive genuine assistance to feel the pride of home ownership," said Grant Shapps, housing minister.
"Tenants who have done well for themselves and want to get across the threshold to home ownership can now expect a discount of up to £75,000 to help them buy the home they live in.
"Councils must ensure that their tenants are kept properly informed of the new opportunities, and offer a helping hand to those tenants who want to buy their property."
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