Kensington and Chelsea Tenant Management Organisation (KCTMO or TMO) said it was relinquishing responsibility of thousands of properties to the council, which it managed on behalf of the authority, citing concerns it could no longer deliver services effectively.
The council said it had "negotiated the return to direct control" on what it said was an "interim basis", to ensure homes are looked after and residents are safe.
Deputy council leader Kim Taylor Smith announced on Wednesday (December 27) that there will be a "wide-ranging and comprehensive review of the work of KCTMO".
"The TMO has lost the trust of residents, the council and government, so today's news should go some way towards restoring confidence that the management and maintenance of social housing in the borough is being thoroughly reviewed and reformed," he said.
"We've listened to residents and are taking back control of delivering services on an interim basis before we consult with all residents on a long-term solution for how they would like housing to be run in the borough."
The authority said this solution means members of KCTMO's board of directors can still be questioned by the Grenfell Tower Inquiry, can be prosecuted by police if evidence of wrongdoing emerges, or be sued as part of a civil claim.
A consultation early next year will ask residents for their views on how they want their estates and homes managed, including investment, repairs and maintenance, the council said.
KCTMO recently wrote to residents announcing it would be temporarily handing back control for the homes it managed on behalf of the local authority.
The future of KCTMO has hung in the balance for several months after RBKC stripped away its responsibilities over the Grenfell Tower estate.
Survivors of the fire at the west London block, where 71 people were killed, managed to postpone a vote which could have seen the council end all arrangements with the firm in October.
Around 9,000 properties are managed by the KCTMO in the borough.
Chairwoman Fay Edwards wrote in a letter dated December 22 that the TMO board "can no longer guarantee that it can fulfil its obligations" to a "standard that residents should expect".
"The board has decided that it would be in the best interests of all residents that the services which the TMO currently provides are temporarily handed back to the council while it carries out consultation with you about the future management of its housing stock," she added.
"This decision has been made because this consultation will take some time.
"While the board acknowledges that this longer period is necessary (it may be a year or longer), this has greatly increased the risks of maintaining the service levels we provide to you."
Handover of responsibilities will take place by January 31 2018, the letter added.
The move will likely anger residents, who had previously expressed a desire to see the KCTMO fold but were concerned it would avoid criminal or civil action if it ceased to exist.
Police are currently investigating the body over possible corporate manslaughter charges in connection with the disaster.
In a refurbishment designed and delivered by the KCTMO and contractor Rydon at Grenfell Tower, flammable cladding was installed on its exterior which is suspected of fuelling the deadly inferno in June.
Joe Delaney, who lived in a block formerly managed by the TMO in the shadow of Grenfell Tower and is a member of the council's Grenfell recovery scrutiny committee, criticised the move.
He told the Press Association : "My main concern at the moment is capacity, RBKC hasn't even shown the capacity to deal with the Grenfell disaster, so how can they demonstrate that they have got capacity to bring stuff in-house at this time?"
He added: "And also, what precisely is KCTMO going to do during this time?
"It is still going to be getting money from the council to keep itself up and running, but it won't have a job."
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