The government has given Redbridge Council £175,000 to get families “unlawfully stuck” in B&Bs into proper homes.
The council was one of just seven authorities in England to get a slice of £1.9million aimed to help thousands of people.
By law, people must only be kept in temporary accommodation for up to six weeks as a last resort.
In Redbridge, B&Bs, hostels and short-term flats are used in emergencies for people at risk of homelessness, for example.
But many are forced to live in limbo for too long because of the shortage of council housing in the borough.
A council spokesman said 261 people are currently staying in bed and breakfast accommodation – 64 of whom have been there for longer than the legal limit of six weeks.
There is a huge backlog for social housing in Redbridge, with 13,729 households on the waiting list. The number will reduce to around 6,500 when new rules limiting eligibility come into force.
Communities minister Don Foster warned the money should not be used as a “quick fix” to housing pressures.
He added: “I want these councils to find long-term solutions to homelessness in their areas.
“They have a legal duty to help these families, and with this funding I expect them to ensure that no family need ever be stuck in this unsuitable accommodation for weeks on end.”
A council spokesman said the funding will be used to increase the supply of temporary accommodation, including possibly using empty office space.
She added: “We are developing proposals for new affordable housing and freeing up under-occupied council housing.”
Cllr Michelle Dunn, cabinet member for housing, said: “This welcomed funding received from DCLG will help us towards meeting the needs of vulnerable families in our community.”
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