The new development will provide a mix of one, two and three bedroom houses and will be managed by Hjaltland Housing Association.
The Scottish Government is providing a grant of £971,014 towards the £1,457,909 development.
Construction of the houses, which is expected to start early next month, is planned to be completed by April 2011.
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Housing and Communities Minister, Alex Neil said: "In these challenging times, this is great news for Shetland.
"The provision of quality affordable homes is vital to ensure the prosperity of our island communities.
"It helps to house and retain the local population, and will boost employment and the local economy."
By the end of this financial year, total Scottish Government investment in affordable housing in Shetland since 2007, will reach £17.742 million.
This is made up of grants to Hjaltland Housing Association, to build new affordable homes, and to Shetland Islands Council to support the local authority's housing service.
(GK/BMcC)
