Ace Magashule, 63, a close ally of ex-president Jacob Zuma, was kicked out of the ANC this year over corruption allegations but remains popular with parts of the left-leaning electorate.
"We are a new political party and we call ourselves the people's party," Magashule told a press briefing in Soweto, of the new grouping whose official name is African Congress for Transformation (ACT).
The move could further dilute support for the ANC, analysts say.
The party has been in power since the advent of democracy in 1994 but its once-stellar standing has been mauled by allegations of corruption and mismanagement.
Polls suggest it could see its vote drop below 50 percent in the 2024 elections.
Magashule said his new formation aimed at championing the plight of "all South Africans", calling it a new home for "the homeless, the betrayed and the fatigued."
The ANC is "moving fast towards the right and abandoning its centre-left position," he said, defending his former boss, Zuma -- who is also facing graft accusations -- as the victim of a witch hunt.
"Zuma was hunted down like a dog for fighting white monopoly capital," he said.
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Magashule was suspended from his role as ANC secretary general in 2021 under a new policy aimed at cleaning up the party image after a litany of scandals -- and was eventually expelled from the party earlier this year.
He is facing charges of corruption, fraud and money laundering, related to the alleged embezzling public funds earmarked for the removal of asbestos from government-built homes.
The clean-up was never completed and investigators believe that the equivalent of over $12 million was pocketed.
