The Cobblers' home, which opened in 1994 and is owned by Northampton Borough Council, will see its capacity increase by 2500 to around 10,000 while a hotel and corporate and conferencing facilities will also be built in time for the 2014/15 campaign.
"We made a long-term commitment in our election manifesto to help Northampton Town Football Club redevelop Sixfields," said David Mackintosh, leader of Northampton Borough Council.
"We have agreed a redevelopment partnership with Northampton Town Football Club that involves a housing scheme and small scale, local retail development on land, upon which the football club have a 150-year lease, as well as adjacent land near the stadium.
"We recognise it will take a number of years for the profit from this to come to fruition, so to allow matters to proceed in the meantime Northampton Borough Council will loan the club up to £12million to allow the redevelopment to go ahead as soon as possible.
"The loan we are making to the football club is not money from the tax payer. As a public authority we have access to funds that the football club don't have and the developments will pay for the stadium improvement. Until then, this loan will allow the club to get started.
"We envisage planning applications for the stadium being submitted this autumn, with a new look stadium ready for the start of the 2014/15 season, or just after. This is great news for Northampton."
The Cobblers could have some tenants in the 2013/14 campaign after it was reported that Coventry would play their home games at Sixfields following their row over rent at the Ricoh Arena.
The Sky Blues were offered a rent-free stay at their 30,000-seater home but chief executive Tim Fisher indicated they would prefer to move away and then build a new stadium.
The proposal, which would see City commuting 34 miles for home games, will be discussed by the Football League on Thursday.