Recruitment for the roles is set to start in early 2010 and the first 500 jobs will be filled by the end of next year.
Business secretary Lord Mandelson said: "I welcome this decision and I am proud of the government support that has helped make it happen. The jobs created by this investment will be invaluable to the North East, and to the wider UK economy.
"It is hugely encouraging that Tesco has chosen to invest here. The range of government support available is ensuring that people and businesses get the help they need to create new jobs across the whole of the country."
The new centre will be based at Quorum Business Park, Newcastle and will manage customer sales and service for Tesco Bank's home and motor insurance customers.
In addition to today's announcement, Tesco Bank has this year created a further 200 jobs at its Edinburgh headquarters and will be recruiting a further 800 full time jobs at a new customer service centre in Glasgow.
Benny Higgins, chief executive of Tesco Bank added: "I'm delighted to be announcing more jobs as we push ahead with our exciting plans to build the Tesco Bank.
"Newcastle is the ideal home for our new insurance customer service centre. The North East of England has strong experience in customer services and the financial sector, with a well-qualified and enthusiastic workforce. The city is a great fit for our business and as it develops we will be investing even more in the region over the coming years."