If you have always been the sole tenant of the property (and you did not gain the tenancy through succession yourself), your oldest grand-daughter has to automatic right to succeed to the tenancy. (So you don't have to do anything).
If, however, you gained the tenancy through succession yourself, your granddaughter will not be allowed to succeed to the existing tenancy. (It's important to note that if you were originally a joint tenant with a spouse or partner, and you became the sole tenant upon their death, you've technically succeeded to the tenancy). That, of course, doesn't prevent the council from granting a new tenancy to your granddaughter.
However, there's probably no reason why your local council should object to you changing the existing tenancy to a joint one. It's simply involves filling in a form which you and your grand-daughter will both have to sign.
See here for further information:
http://www.direct.gov.uk/en/HomeAndCommunity/S ocialHousingAndCareHomes/CouncilHousing/DG_100 22543
Chris