The islands are being acquired because they offer significant development opportunity, with funds to come from the Councils Strategic Reserve Fund.
The islands, located between Westray and Eday, were put up for sale by the Stewart Endowment Trust in August 2018.
The Trust disperses the majority of its funds locally, including to NHS Orkney, so it is anticipated that most of the money generated from the sale will stay in and benefit Orkney.
Orkney Islands Councils Leader James Stockan said: "The availability of this opportunity at a point when the Council is actively looking at how best to maximise the resources available to them during financially challenging times, was too important to miss.
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"There was significant local and national demand for these islands and it was vital that the Council did all it could to secure them as a strategic development opportunity. There are a number of potential routes we could now take with them – some of which offer us the opportunity to generate income, some to make savings - and officers will be exploring these opportunities in due course."
Iain Macdonald is Chair of the Stewart Endowment Trust. He said: "The Stewart Endowment Trustees offered these islands for sale in order to generate funds, which are used to support the work of local congregations, the Balfour Hospital and a couple of national charities, as defined by the Endowments founding document. We are delighted that they will be moving into the guardianship of the local authority, where they will remain a precious asset for the whole community for generations to come."
The main island, Faray is around 300 acres, the Holm of Faray around 80 acres and the smallest of the three, Red Holm, is just five acres.
There are a number of ruinous dwelling houses scattered across Faray together with a bothy which is housed in the former school. The island is mainly semi-improved grassland and has several sandy beaches together with rocky shorelines and cliffs.
Faray had a population of 82 in 1861, falling to 58 by 1891. By the late 1930s, there were eight crofting families living on the island, making a living through lobster fishing. In 1947 the last islander had left Faray.
The islands are home to a colony of grey seals with parts designated as a Site of Special Scientific Interest and Special Area of Conservation.
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