The move comes ahead of the likely announcement that Super League side Crusaders are to complete a move north to Wrexham.
The new club will be independently run by a brand new management team, headed by local businessman Phil Davies, and will play its home fixtures at The Gnoll, Neath.
Davies will be joined on the wholly Welsh board by Mark Rowley, Executive Chairman of the Wales Rugby League.
Nigel Wood, the RFL Chief Executive, said: “After careful consideration and following close consultation with existing Cooperative Championship clubs the board felt that welcoming the new club to Championship One was the right thing to do.
“The sport has made great strides in Wales in the last few years and in 2009 over 1,500 players have played the sport in the Principality, a 300 per cent increase on participation levels before Celtic Crusaders were formed four years ago.”
Wood continued: “The new club is a vital link in the playing pyramid in Wales and maintains a career pathway for the cream of Welsh talent.
South Wales RLFC will not participate in the Carnegie Challenge Cup or Northern Rail Cup in 2010 and will begin life with a home match in The Co-operative Championship One against Workington Town on Sunday February 28 at The Gnoll.