The announcement of the new venture, which will deal exclusively in Shariah compatible products, follows the granting of approval from the Monetary Authority of Singapore.
DBS' partners include investors from six Gulf Cooperation Council countries including Saudi Arabia, Bahrain and Kuwait, with the Singapore bank holding the majority stake.
News of the deal comes after similar expansion from DBS in Dubai, where it established an Islamic bank last year and signals the bank's plans to significantly expand its interests in the sector.
Jackson Tai, chief executive officer of DBS Group told Channel News Asia: "We are very pleased in our success and progress in Dubai. The next step for us is to make sure that we have the scholars, the authorities that can help us in Syriah [Shariah] financing.
"And with that, we'll be looking at the possibilities of expanding our participation to lead in Islamic financing."
It is anticipated that the Islamic banking market will grow at a rate of 15 per cent annually over the next ten years. It is currently valued at $350 billion.