Dyke's group agreed at a meeting on Monday to submit a proposal to become the new national "backbone" for local TV services, reports The Guardian.
Last month, culture secretary Jeremy Hunt announced plans to create a new channel for delivering locally-focused content and services in major British cities.
Hunt called for potential bidders to submit proposals by March 1 for providing the UK-wide channel on digital terrestrial television (Freeview). The channel would have a national schedule of programming, but enable local operators to "opt out" in certain areas to deliver local shows and adverts.
The LTN joins Richard Horwood's Channel 6 group in bidding for the local TV channel. Channel 6 has claimed that its network would have a programme budget bigger than Channel 5 and spend roughly the same amount per viewer as BBC Two.
Alongside Dyke, other members of the LTN include former BBC director of nations and regions Pat Loughrey, former ITV executive Mike Southgate and Lis Howell, previously of Border TV, Sky News and GMTV. Daniel Cass, who runs local TV operator SIX TV, is acting as the group's main co-ordinator.
Last December, an advisory panel run by Lazards investment banker Nicholas Shott indicated that local TV would be financially viable in around 10 or 12 of the UK's largest cities, starting on Freeview but ultimately moving to IPTV platforms.
However, former BBC director general Dyke argued that local TV would be commercially viable in at least 60 areas of the UK, largely because the services would "be cheaper to run than Shott believes".
In a speech at the University of York last month, Dyke also said that a "bonfire of regulations" may be required to make local TV viable in the UK.
"To make local television work, to encourage innovation, we may also have to have a bonfire of regulations which were put in place in one era and not applicable for this sort of television," said Dyke.
"There is no reason in local television why there shouldn't be a split screen with ads running at the same time as programmes, there is no reason why a regulator should decide how many ads run in each hour, there is no reason why local advertorials shouldn't be allowed."