It will make for better matches and - ultimately - fewer empty properties.
SKDC currently matches individuals' needs to their property directly from the housing register, whereas the new Choice Based Lettings Scheme would post available social and affordable rented housing vacancies online for eligible applicants to register a bid for any suitable properties.
Councillor Robert Reid, Cabinet Member for Housing and Property, said: "This will provide customers in the greatest need with as much choice as possible and create an allocation system that is easy for everyone to understand. It gives SKDC the tools to better match those most in need with suitable housing and to use our housing resources as effectively as possible.
"It was also important to have a policy that incorporates current legislation and national policy changes, including those relating to domestic abuse and armed forces personnel.
"In addition to our Corporate Plan commitment to provide housing that meets the needs of all residents, this updated process will support our homelessness strategy, widen choice and be more accessible, as well as reflecting local needs in such a rural area.
"South Kesteven, like many areas nationally, is facing increasing demand for social housing that far outstrips supply. This change will enable SKDC to ensure customers are treated fairly, individually and in accordance with the commitment to equality and diversity and ensure there is adequate support for vulnerable people."
All current applicants on the waiting list will be told about the changes to the policy and help will be provided to complete a new application.
The new policy will now be submitted to SKDC's Cabinet for final approval.