The work that ICL is doing to monitor air quality and congestion in London on behalf of Transport for London will also be integrated with the intelligence system, according to ICL professor John Polak.
Justin Rattner, Intel chief technology officer and director of Intel Labs, outlined plans at the launch event to use London as the testbed of research and development, before the project is expanded to cities throughout the world.
"Those of you who are Londoners, we are about to turn your fair city into a laboratory," he said. "Don't be frightened, we know what we're doing."
"When giving people feedback for how they are using resources, they are remarkably adaptive. If we can provides that feedback to every person in London, their habits will change."
Rattner refused to give a cost estimate for the programme, but said that Intel would sustain its annual investment of £48m in the UK. He said Londoners could expect to see benefits in their lifetime.
"As leaders around the world look to the future, without the adoption of truly sustainable practises across many aspects of society, we are really going to be in trouble," he said.
"Cities pose the greatest challenges to our future. Half the world live in cities. They contribute 80 per cent of greenhouse gasses. In 2050 there will be nine billion people living in cities. The demands in the cities will represent the demands of humanity in general."
Osborne also said that the agreement would benefit start-ups in London and help grow Tech City.
"Two years ago we embarked on the tech cluster in East London. We have seen that cluster grow not through top-down government but through what I call soft government."
Osborne said Tech City has now grown from 200 companies to 700, but the area is still lacking a world-class research base.
"Today's announcement is a major step forward," he added.
Rosalie Marshall is the special projects editor and chief reporter at V3. Previously she was a reporter for IT Week and channel editor for online television site LocalGov.tv. Rosalie covers government IT, business applications, IT skills, open source technology and social networks.