A Treasury spokesman said the proposal was part of Mr Osborne’s plan to create a Northern powerhouse, although environmental pressure group Friends of the Earth has described the move as a desperate attempt to win over communities who are opposed to fracking.
Friends of the Earth believes the Government should focus on securing investment in renewable energy systems.
Speaking to BBC Radio 4’s Today programme, Mr Osborne said: “There’s a very interesting idea which we want to explore, which is whether you could create a sovereign wealth fund for the money that comes from the shale gas that we’re going to be pulling out of the ground, particularly in the north of England.
“That’s a way of making sure this money is not squandered on day-to-day spending, but invested in the long-term economic health of the North of England to create jobs and investment there.
“So a sovereign wealth fund for the North of England based on the shale gas: there is another exciting idea, another part of building a Northern powerhouse.”
A Treasury spokesman confirmed that the House of Lords is set to discuss the idea during the debate on the Infrastructure Bill.
“The chancellor is giving the idea his support and he will return to it at the Autumn Statement, as part of his focus on building the Northern powerhouse,’’ the spokesman added.
“The fund will be put in place when commercial production begins.
“Shale gas has the potential to provide the UK with wider benefits such as increased tax revenues, greater energy security, growth and jobs.
“This sovereign fund means that making the most of our natural gas could be good for energy security, good for business and good for society. This fund will make sure that the profits from our national gas last for generations and benefit the whole country.”
Friends of the Earth Campaigner Helen Rimmer said: “This is yet another desperate attempt by the chancellor to try and win over communities who are saying no to dirty fracking.
“The economic benefits of shale gas have been vastly over-hyped by the Government and their friends in the fossil fuel industry.
“A far better solution for the Northern economy is to invest in renewables and energy efficiency which could create thousands of new jobs for the region and tackle climate change at the same time.”
Fracking is a technique for extracting shale gas which uses hydraulic fracturing, in which water and chemicals are pumped into shale rock at high pressure. Last year, high profile anti-fracking protests were held in Balcombe, West Sussex, when energy firm Cuadrilla carried out test drilling.
Potential locations for the extraction of shale gas have been identified across the North of England, including sites in Lancashire and Cheshire.
Earlier this year, a lawyer who specialises in energy claimed that shale gas extraction could provide a boost for Yorkshire’s economy similar to that experienced in Aberdeen after the discovery of North Sea oil.
Gary Sector, the legal director of Leeds-based Addleshaw Goddard, said that parts of Yorkshire could enjoy a “Shetland Island effect” with new sports and community halls being built in areas where extraction is taking place. Mr Sector made his comments as part of The Yorkshire Post’s Big Debate on fracking, which was held in print and online.