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Sri Lanka Institute of Local Governance (SLILG) emerged as an institute in the background of the search for a developmental vision for Local Government in the country by catering to the requirements of capacity building in the Local Government sector. The emphasis herein was to consider Local Government as an autonomous, independent sector that could be directly linked to meet the multi faceted needs of the people through an effective, efficient service delivery. The implying characteristics in this are that, being at the grass root level, they are the best suited institutions that could meet these expectations. In pursuance of these expectations, the Parliament established the SLILG by Act No. 31 of 1999. The institute commenced functioning in October that year.

Under the 13th amendment to the Constitution of Sri Lanka, a three-tiered devolved system of governance was created in the country in 1987, as the effective exercise of devolved power is a necessary condition for the realization of democracy and objectives of power sharing. The objective of the SLILG is to facilitate the enhancement of institutional and managerial capabilities of Local Government Institutions and Provincial Councils for the efficient and effective delivery of services to the people and to ensure good governance at regional level. The establishment of SLILG was a logical conclusion in implementing the recommendations of a Presidential Commission appointed in 1997 to address the issues of capacitating the Local Authorities and Provincial Councils.