The new service will allow customers to receive some of Sky's most popular programmes - including sport and movies - through a conventional rooftop aerial and a DTT box for a monthly subscription.
The announcement comes on the day that the merged companies of Virgin Mobile and NTL Telewest relaunched as Virgin Media.
The line-up of channels on the new Sky service will offer a range of content including sports, movies, entertainment and news. The sports service will include live coverage from the Barclays Premiership and other top events. Full details, including branding, pricing and the complete channel line-up, will be revealed closer to launch.
Previously, a selection of Sky's basic and premium pay TV content - including live Premiership football - was available on DTT from 1998 to 2002.
The new service will make use of existing capacity that Sky currently uses to broadcast Sky Three, Sky News and Sky Sports News. As a result, these channels will cease to be available free-to-air via DTT in advance of the launch of the pay-TV service.
Mike Darcey, Sky's chief operating officer, said: "We look forward to bringing some of Sky's most popular content to digital terrestrial viewers. This will give families more choice and increase the availability of leading content and channel brands."
Sky plans to broadcast its pay-TV channels on DTT using the more efficient MPEG4 compression technology, enabling Sky to offer four 24-hour video streams in place of the three Sky channels currently available, with further improvements expected in future. The pay-TV service will use a highly secure conditional access (CA) system similar to the one that Sky uses for its satellite television service.
To access the service, customers will have to buy a new set-top box that includes the relevant CA software and MPEG4 decoder. It is anticipated that once the service launches multiple manufacturers will have the opportunity to produce compatible set-top-boxes.
The launch of the new service is subject to approval by Ofcom. The regulator would have to modify licences held by Sky and transmission provider National Grid Wireless in order to permit the service to operate.