The Sheffield City Region Authority will bring council leaders together to develop area-wide plans to improve the economy and oversee a new investment fund to help businesses grow.
It will also replace the South Yorkshire Integrated Transport Authority as the main body responsible for transport in the area.
The councils involved have stressed the authority will focus on taking over powers from Whitehall so key decisions can be made locally, rather than weakening local authorities.
Sheffield City Council leader Julie Dore said: “Instead of making nine decisions we can make one and that one decision will be to the benefit of everyone across the city region, not just one town or city. Being part of the combined authority will mean that Sheffield and the city region can compete nationally and locally.
“We’ve already seen how successful Manchester has been since their City Region Authority was established and we want to make sure that Sheffield City Region is able to take full advantage of these new devolved powers.”
The new authority builds on the Sheffield City Region Local Enterprise Partnership, formed two years ago as a way of councils and business in the area to work together to grow the economy.
LEP chairman James Newman said: “We are an ambitious city region based on a strong, stable partnership between the public and private sector.
“The SCR Authority ‘hardwires’ the partnership between the public and private sector in the SCR – providing a solid, stable platform for future governance and decision making.”