The £2m growth fund will provide grants of up to £50,000 to at least 100 businesses to safeguard or create around 400 jobs.
It comes after the council, Daily Echo and Solent Local Enterprise Partnership (LEP) teamed up to successful bid for the cash.
Now business secretary Vince Cable has given the go ahead for the funding to be released early so Ford workers could bid for grants to set up their own businesses ahead of the planned closure of the Swaythling plant next July.
More than 500 Ford workers face redundancy and hundreds more contract and supply jobs are at risk from Ford’s bombshell closure announcement last month.
Half of the funding will be earmarked for new businesses, including 10 start-ups run by young entrepreneurs who have been unemployed for more than six months. The other half will help grow existing businesses.
The “Bridging the Gap” scheme will be targeted at Southampton and the Isle of Wight.
Final approval for how it will be spent will be given by the full council in January.
Daily Echo editor Ian Murray said: “We are delighted that the funding will allow us to support businesses across Southampton and the Isle of Wight.
“We have seen the success of the first round on the Portsmouth side of the Solent and have constantly been asked by entrepreneurs when this funding will be available on a wider basis.”
A competition for the cash will be launched in the Daily Echo in January with a deadline for expressions of interest in February. Southampton council leader Richard Williams said: “The Cabinet had no hesitation in accepting £2m from the Government’s Regional Growth Fund (RGF) to support local business start-ups and growth, after Southampton City Council, working with Solent Local Enterprise Partnership and the Daily Echo submitted a successful bid for this money.”
The Solent Local Enterprise Partnership, which coordinated the bid, has scooped a total of £15 million in the latest round of grants from the RGF.
Of this, £10 million is being allocated to supporting the defence industry, including the naval base at Portsmouth.
A further £3 million is being ploughed into creating a “world-class” manufacturing training centre in the enterprise zone set up on the former HMS Daedalus site.