The two-year courses, intended for part-time study, will blend academic learning with technical skills to increase the employability of graduates.
FE colleges have been invited by the Higher Education Funding Council for England to form partnerships with employers and HE institutions to run the degrees.
HEFCE chief executive Sir Brian Fender said: "Foundation degrees offer a valuable qualification to people preparing to meet the challenges of a knowledge-based economy. They will also open doors to those who may not previously have been able to take advantage of higher education."
Foundation degrees will come into effect in the autumn of 2001, under plans announced by higher and further education minister Baroness Blackstone.
The Government wants foundation degrees to become the leading further education qualification.
Funding at pound;5 million for around 2,000 student has been guaranteed for the first year.
Baroness Blackstone said: "It is a radical and direct response to employer demand for more and better-trained technicians."
Most students are expected to study part-time over a longer period. If they return to education at a later stage, the qualification will count towards an honours degree. But the HEFCE stresses the courses are designed to make students "immediately attractive to employers".
Ministers hope the degree will also help reach the target of ensuring that half of all young people get some kind of further or higher education before they are 30.
The first courses are likely to cover financial services, health care, tourism, computing and the media as those are the economic sectors with the biggest skills shortages, according to the National Skills Task Force.
Curriculum and teaching methods will be up to individual institutions, although there will be a set of "core features" to make sure they meet industry requirements.