The band, which are famous for a string of top 10 singles including 'The Only One I Know', 'North Country Boy' and 'One To Another', are currently putting the finishing touches to their, as yet unnamed, new album, which is slated for an early 2008 free-to-download release via the Xfm website.
The station also plans to make The Charlatans' forthcoming single, 'You Cross My Path', free to download from its website on October 22; the band will also be interviewed on Xfm's 'Music: Response' on October 4.
Xfm said it had been in talks about the deal for a couple of months after it emerged that the band, had the backing of Alan McGee, founder of the Poptones and now defunct Creation label; had their own recording studio; and were out of contract with their UK label, Sanctuary.
McGee said the decision to give away the album could create a "new business model" for the industry, after claiming the majority of revenue produced by artists came from tours, merchandise and synchronisation deals.
However, the move could spark criticism from the record industry and retailers, which have traditionally been critical of artists that have given their music away.
In July, Prince sparked a major row with HMV when the singer gave away his latest album, 'Planet Earth', free with The Mail on Sunday. HMV claimed it devalued music and the Entertainment Retailers Association also responded that the move "beggar[ed] belief". However, HMV decided to stock The Mail on Sunday on the day of Prince's album give away.
McGee said: "We were really excited when Xfm got behind us and were as enthusiastic about the download as we are -- they are the first people to embrace music for the people.
"The band will get paid by more people coming to gigs, buying merchandise, publishing and synch fees. I believe it's the future business model."
The Entertainment Retailers Association has responded to The Charlatans Xfm deal by stating it could be damaging for the music business as a whole.
In an interview in The Independent, Kim Bayley, director-general of the Entertainment Retailers Association, said: "This model is fine if you are a band that has already made it but our worry as an association would be whether it takes away that ability of new bands to get their foot on the first rung of the ladder."
Tim Burgess, lead singer of The Charlatans, added: "We want the people to own the music and we want the artist, i.e. us, to own the copyright. Why let a record company get in the way of people getting the music?"