The group, which has partnered with MBNA since 2002 to provide Virgin credit cards, has agreed to buy £1 billion of the firm's UK credit card assets.
Sir Richard Branson's Virgin Money is launching its own credit card business after striking a £1 billion deal with MBNA.
Around 1.6 million customers currently have a Virgin credit card through MBNA and 550,000 of these will transfer to the wholly-owned Virgin Money business in early 2014.
Virgin Money said terms and conditions will remain the same for all customers until the deal completes next year. Its new credit card operation will be based in Gosforth, Newcastle and is expected to create at least 150 new jobs, according to the group.
Jayne-Anne Gadhia, chief executive at Virgin Money, said the move will "bring some fresh new competition to the UK market".
She added: "A credit card business will complement our existing mortgages and savings business and represents another significant step in growing our bank."
The deal comes after Virgin bought nationalised Northern Rock and its 75 branches in a £747 million deal as part of its aim to create a new challenger in the high street banking sector.
It also snapped up a £465 million mortgage portfolio from UK Asset Resolution, the taxpayer-owned holding company for Northern Rock's bad bank and Bradford & Bingley.
Lance Weaver, former vice chairman of MBNA, is joining the group as president of Virgin Money Cards and will be based in the UK.
David Buxton, who has led Virgin's partnership with MBNA for the past four years, will continue as managing director of the new credit cards business.