Mayor Sir Robin Wales and Chief Executive Joe Duckworth welcomed the announcement, which was made at a reception hosted at Downing Street.
The six day cycling event will take place in the borough in October 2009 and will be headed by world champion cyclist, Tony Doyle MBE.
The festival will provide the first opportunity for Londoners to see and experience indoor track cycling on home soil, and it will be used to build interest in track cycling within the local community in the run-up to the 2012 Olympic and Paralympic Games.
Sir Robin said: "This is fantastic news. We are absolutely thrilled that Newham will have the best cycling facilities in the world after 2012, and the festival will boost our cycling development programmes giving our residents a real taste of what is to come in 2012 and beyond.
"Cycling is an activity that we have been promoting in the borough and is an integral part of our delivery of sports provision. This new facility will be a major boost to encouraging more people of all ages to experience track cycling either as participants or spectators."
Tony Doyle said: "This is going to be fantastic for both London and the UK, ahead of the permanent Velodrome in London the public will be able to watch world class cyclists and then have a go themselves. We are delighted the government have recognised the potential of this event and my team and I look forward to developing the plans over the coming months.
"The GB track team is now recognised as the world's most successful track team. Our success at Manchester in March this year when we won nine world titles means that all the riders in the GB track team will be contenders for Gold medals in Beijing."
