The article presents a clustering algorithm designed by the authors for clustering the regional space and managing the development of the cluster, including the main stages of identifying and managing the cluster structure, which allows to determine the priorities for the development of cluster policy and encourage the effective implementation of the competitive advantages of the territory. It is shown that the use of the cluster approach is gaining importance, since it is based on proactive stimulation of propulsive sectors, the creation of cluster-based «growth poles» in the economy of the region, which should be the main method of progressive structural transformation of regional socio-economic systems. Cluster policy should be aimed at creating and stimulating propulsive sectors, as well as replicating clustered franchising to enhance localized competitive advantages of the economy and concentration of investment resources in a particular area. We formed an algorithm for creating clusters of regional space and managing cluster development with the goal of identifying competitive advantages and prerequisites for cluster formation in the region, substantiating the priority directions of development of clusters with the priorities of the regional socio-economic policies and objectives of the state, forming and implementing the cluster policy, taking into account the specifics of the spatial structure of the regional economy and strategic orientations of the regional development, the coordination of the objectives of cluster policy development with the strategic targets of regional development and economic and organizational possibilities of different entities participating in the cluster. Thus, the implementation of all stages of the proposed clustering algorithm of regional space will facilitate the allocation of the priority directions of regional development, focusing on propulsion industries connected to investment programs necessary for implementation, which allowed to form the main directions of development of the incentive mechanism of the state promotion of the cluster policy.