Rail Minister Chris Heaton-Harris said moving hundreds of Department for Transport staff to a northern hub in Leeds and others to a second headquarters in Birmingham will "improve government across the piece".
The move, described as a "significant wider culture change across Whitehall", will see a major DfT base in the biggest city in Western Europe not to have a rapid mass transit system such as a tram.
West Yorkshire leaders are currently preparing a bid to submit to government next year for a share of the £4.2bn Transforming Cities Fund to help build a metro system as part of their wider vision for transport in the county.
And two of West Yorkshire council leaders said they hoped having a DfT base in Leeds would help "make the compelling case for future investment in our transport system".
Conservative Mr Heaton-Harris said the need for investment in West Yorkshire was understood by Ministers but admitted that "MPs and others are often accused of living in a Westminster bubble".
He admitted that London-based civil servants responsible for policy in his department "can step outside the office and immediately get onto a bus to go to a tube station and then finish their commute on a train".
And he said: "There might be a kind of a lack of understanding of what might exist outside of what they experience on a daily basis.
"So I would like to think we will get a better understanding of what people's everyday experience of travel and transport is by doing what we're doing. I genuinely think it will improve government throughout the piece."
The Minister said that during a campaign visit to West Yorkshire during the 2019 General Election he had a "long conversation" with his friend Stuart Andrew about the potential for the transport system in Leeds.
He said: "If you look at what might well happen to Leeds station itself, with HS2 and Northern Powerhouse Rail and it's not just Platform Zero, it's the whole host of other things which will, I think, fundamentally change the nature of transport in the city.
"So I think I completely understand the point that's being made and I think potentially civil servants in the city are a good thing to help with that policy change, but I think it's understood anyway."
The announcement of a new northern hub for the Department for Transport comes after Rishi Sunak announced that Leeds would host the new National Infrastructure Bank. Channel 4 has moved its headquarters to Yorkshire's biggest city and the Conservative Party is also setting up a base there to help cement its 2019 General Election gains in the North.
Mr Heaton-Harris said DfT already had a small presence in Leeds and shared a building in the city with Highways England.
But he said: "The purpose of this is we're recruiting already jobs throughout all the grades of the Civil Service to be based in Leeds, and are expecting other departments to join us so someone can have a complete Civil Service career working through from the bottom to the top, without actually having to venture down into London for a period of time.
"I'm a Midlands MP and I'm very much looking forward to not having to commute to London to do ministerial work.
"Considering so much of the investments we are putting in is going to be across the North it is a very good place for ministers to spend some time."
The announcement came as emerged that more than 1,000 UK civil service jobs are due to be relocated to Scotland in the coming years.
As well as the previously-announced Cabinet Office headquarters in Glasgow, more than 500 Foreign Office jobs will move to the department's existing base in East Kilbride, South Lanarkshire.
Henri Murison, director of the Northern Powerhouse Partnership, said: "A northern hub for the Department for Transport in Leeds is a welcome step forward to shifting more decision-making outside the Whitehall bubble, even if no Ministers will be based here.
"We hope this sets an example to other UK businesses considering North-shoring or investing here, which will be key to driving growth, creating jobs and rebalancing the economy in the recovery."
James Lewis, Leader of Leeds City Council, said: “This shows once more the importance of Leeds, not just to our region but to the North of England and the UK. Investment in transport is central to our plans for the future and I hope the presence of more decision-makers in our city helps ensure the case for further investment in Leeds is heard.”
Susan Hinchcliffe, Chair of the West Yorkshire Combined Authority and Leader of Bradford Council, said: “This is another positive investment recognising our region’s strengths, following the decision to locate the UK Infrastructure Bank here, bringing benefits not just to Leeds but Bradford and the wider region.
"I hope it will help us as we make the compelling case for future investment in our transport system, to better connect our communities and raise living standards while cutting carbon emissions.”
IPPR North Research Fellow Marcus Johns said: "The relocation of staff to Birmingham and Leeds is a welcome step.
"Although the number of jobs announced is relatively small, the location, perspectives and experiences of policymakers matters.
"For civil servants working on transport policy to experience England’s broken transport system daily should result in more enthusiasm to fix it. But this is not a panacea.
"Re-arranging the furniture of Whitehall is not a substitute for devolving power. Relocation is not devolution. It does not replace jobs or capacity lost due to recent cuts to Transport for the North or long-term austerity faced by councils like Leeds City Council.
"We are one of the most centralised countries with legislative shackles around local government's ability to act. Only by reversing this and empowering local places to truly deliver on their priorities with powers and resources, will any Government level up the UK."