The UK government's communities secretary Sajid Javid announced the plans earlier today, one week after the fire that has so far claimed 79 lives.
The Corporation of London has bought 68 flats to be used as social housing for residents of the Kensington and Chelsea borough.
They were bought from the quota of 120 affordable homes in the development, which also will include 301 private homes and 92 "extra-care" homes.
"The 68 affordable homes were always designed as part of the original scheme for Kensington Row," developer Berkeley Group told Dezeen.
The apartments in Kensington Row, where private homes are on the market for between £1.6 and £3.5 million, are expected to be fitted out in preparation for new tenants to move in by the end of July.
"The residents of Grenfell Tower have been through some of the most harrowing and traumatic experiences imaginable and it is our duty to support them," said Javid.
"Our priority is to get everyone who has lost their home permanently rehoused locally as soon as possible, so that they can begin to rebuild their lives," he added.
"The government will continue to do everything we can as fast as we can to support those affected by this terrible tragedy."
The developer has committed additional construction workers to speed works on the project, while the government has provided extra funding to hasten the fit-out of the apartments.
The range of one, two and three-bedroom apartments are split across two blocks and located just off Kensington High Street – just under two miles from Grenfell Tower. Facilities will include a five-star hotel-style concierge service and a cinema.
"Work is ongoing to identify the needs of those affected who have lost their homes and match them to suitable housing," said the Department for Communities and Local Government in a statement.
"The expectation is that these new properties will be offered as one of the options to permanently rehouse residents from Grenfell Tower," it continued.
"The increase to local social housing is a significant step towards meeting the government's commitment that every family from Grenfell Tower will be rehoused in the local area."
The decision follows calls from Labour Party leader Jeremy Corbyn to requisition vacant housing in the borough to rehome survivors of the fire.
The government has given £202,000 from an emergency fun to the 180 families affected by the Grenfell Tower disaster, who have been temporarily housed in hotels.
Prime minister Theresa May has apologised for the "failure of the state, local and national, to help people when they needed it most". She has now pledged government funds to cover the legal costs of victims and survivors participating in the public inquiry into the tragedy.