The Central Unions franchise will be South Africa's fifth team for the expanded Super 14 competition next year.
Central Unions, which comprises the Free State, Griqualand West and Griffons Rugby unions, is likely to be called the Central Cheetahs.
They were awarded the franchise ahead of the Southern and EasternCape delegation.
The four existing teams - the Bulls, Sharks, Stormers and Cats - will continue but will have to use players from smaller unions and play some matches away from the main centres in an effort to spread the game.
The five regions will be based in Johannesburg (Cats), Pretoria (Bulls), Cape Town (Stormers), Durban (Sharks) and Bloemfontein (Cheetahs).
The Southern and Eastern Cape, which comprised three unions, namely Border, Eastern Province and South Western Districts was believed to be favoured by the Government because of its largely black player base.
Black player representation has been hotly debated in South Africa in recent months and the Southern and Eastern Cape's bid document played heavily on its ability to produce black players and speed up the racial transformation of rugby.
But due to issues such as poor infrastructure and financial mis-management at Eastern Province and Border, the panel and the South Africa Rugby Union seemed reluctant to award them their own independent franchise.
"The region will [still] enjoy Super 14 rugby and, most importantly, at least 20 black African players will gain exposure in the Super 14," SARU president Brian van Rooyen said.