The Principality currently has 51 branches in Wales and the borders

The move follows the Welsh-based society's takeover of a finance company, Loan Link Limited.

The Principality said the takeover of Loan Link would allow it to create its own finance company and broaden its range of services.

The Welsh Assembly Government provided regional selective assistance support for the project.

Peter Griffiths, chief executive of the Principality, said: "While we looked at all parts of Wales as a key location for this business, it is clear that the availability of key skills in the capital was the most critical component.

"This factor underpinned our decision to base the business in south Wales, creating 160 new jobs including opportunities for existing Principality Group staff to build diverse careers within financial services.

"We expect to be live in the first quarter of 2005 and have ambitious growth plans underpinning the development of this business, benefiting all Principality members."

Welsh Economic Minister Andrew Davies added: "I am delighted that we have been able to provide financial support towards this new venture.

"The business, which will be Cardiff based, builds on the financial services sector strategy driven by the Welsh Assembly Government and Welsh Development Agency, which has seen the creation of several financial sector businesses in Wales."

The Principality currently has 51 branches in Wales and the English borders and is the 12th largest building society in the UK.