The government does not publish figures on how many veterans are currently on waiting lists for social housing, but in the first three months of 2024, official figures show 650 veteran families in England qualified for social housing to avoid homelessness.
Guidelines published on Wednesday ask councils to set aside housing units and give veterans additional preference.
Any financial compensation received for injuries received during armed service will now be ignored when it comes to means-testing social housing need.
The guidelines state for the first time that those with mental health conditions related to serving in the military - such as Post Traumatic Stress Disorder (PTSD) - should get priority access to social housing.
Councils will also be expected to exempt estranged spouses and partners of service members from local connection rules, particularly in cases of domestic abuse or significant disruption caused by frequent relocations due to military postings.
Previously veterans, and their families, had only a five-year exemption from the local connection test.
Under the new regime, councils must also improve methods to spot veterans among housing applicants.
The move is part of the manifesto pledge to put the Armed Forces Covenant - a promise to treat those who have served with fairness and respect - fully into law.