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Economy secretary Keith Brown said the new agency, which will in effect take over the role of Scottish Enterprise in the south of the country when it becomes fully operational in 2020, was one of several measures in the final report from an enterprise and skills review.
Scottish Enterprise will continue to provide support and advice for businesses in Edinburgh, Glasgow and the rest of the Central Belt, while the existing Highlands & Islands Enterprise will continue in this role for northern Scotland.
"After 10 years in office the SNP has finally made good on Shona Robison's pledge to build on Labour's transfer of jobs to Dundee.
This is great news for Dundee, our economy and our experienced civil servants." Alison Johnstone MSP, the Scottish Greens' social security spokeswoman, said: "The announcement is welcome because it marks a milestone in the Scottish Parliament taking control over significant new powers over social security that have the potential to make a positive impact on people's lives.
In 1801, Great Britain itself entered into a political union with the Kingdom of Ireland to create the United Kingdom of Great Britain and Ireland.
Within Scotland, the monarchy of the United Kingdom has continued to use a variety of styles, titles and other royal symbols of statehood specific to the pre-union Kingdom of Scotland.
Scotland subsequently entered into a political union with the Kingdom of England on to create the new Kingdom of Great Britain.
The union also created a new Parliament of Great Britain, which succeeded both the Parliament of Scotland and the Parliament of England.
It is believed the first post-glacial groups of hunter-gatherers arrived in Scotland around 12,800 years ago, as the ice sheet retreated after the last glaciation.
READ MORE: SNP appoints 'sleaze-finder' to dig into activities of past Labour councils Ms Sturgeon said: "Having powers over newly devolved benefits presents an exciting opportunity to create a social security system for Scotland that is fairer and based on dignity and respect.
"I'm delighted to confirm that Dundee and Glasgow will be the locations of the new social security agency.
It shares a border with England to the south, and is otherwise surrounded by the Atlantic Ocean, with the North Sea to the east and the North Channel and Irish Sea to the south-west.
In addition to the mainland, the country is made up of more than 790 islands, including the Northern Isles and the Hebrides.