Business Secretary Vince Cable said the headquarters will be in Edinburgh, with the main transaction team in London.
"Harnessing the strengths of Edinburgh and London will support the Green Investment Bank's ambition to become a world leader.
"Edinburgh has a thriving green sector and respected expertise in areas such as asset management. London, as the world's leading financial centre, will ensure that the GIB's transaction team can hit the ground running.
"This decision will allow the GIB to operate effectively and achieve its mission of mobilising the additional investment needed to accelerate the UK's transition to a green economy," said the minister.
The government has pledged £3bn for the bank initially, which will lend to businesses wanting to invest in renewable energy projects such as wind farms.
Nick Clegg has previously said that he hopes the taxpayer will front up to £15bn of lending in the long-term, with Vince Cable's department claiming that up to £200bn needs to be spent on green technologies overall by the end of the decade.
The establishment of the bank comes despite rumblings within the Cabinet - particularly from George Osborne - about how much taxpayer subsidy should be pumped into renewables. The resignation of Chris Huhne last month was greeted with dismay by environmentalists, who feared it would lead to the coalition easing back on previous climate change pledges.
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