The project, which will see a 12,000-seat capacity venue built on the Olympic Park site in east London, received planning permission on Wednesday.
The Preliminary Round and Quarter-Finals will be staged at the venue with the Semi-Finals and Finals moving to the O2 Arena.
"The arena will be one of the largest temporary venues built for any Games and will provide a great experience for spectators and athletes," basketball arena project sponsor Paul Snoddy said.
The handball Semi-Finals and Finals will also be staged in the temporary venue before it is scaled back to a 10,000-seat capacity for the Paralympic wheelchair basketball and wheelchair rugby.
Back in November, there were discussions about basketball being moved from the Olympic Park to the old Wembley Arena but a budget review determined that did not make financial sense.
The temporary structure that has been given approval will be located in the north of the Olympic Park in Stratford, London.
It was originally planned for the west of the park but was switched after other sports were moved to the ExCel venue in the Docklands.
It remains to be seen if the temporary arena will match the excellent setting offered by the Beijing Games for journalists and athletes.
In Beijing last summer, there was an athletes area and media area inside the Wukesong Arena where all of the basketball games were played.
In London, it may be that both are housed in building containers connected to the temporary arena.
View images of the basketball arena here.
Image courtesy of Getty