Town halls are to be given £100 million to spend on new nursery places to ensure poor families can take advantage of a government guarantee of free childcare, Deputy Prime Minister Nick Clegg announced today.
From September next year 130,000 of the most disadvantaged two-year-olds will qualify for 15 hours a week, with the number set to double the following year - at a cost of £760 million a year.
But the expected surge in demand means around 100,000 extra places will be required as local authorities deal with the new legal obligation to cater for the worst-off households.
They will be expected to use the cash - found from underspends in the Department for Education (DfE) budget - to encourage existing providers to expand their operations and help others enter the market.
Officials hope it will give a kick-start to the market and persuade voluntary sector bodies and private firms to set up or expand nurseries, as well as boosting council provision.
The move comes as Lib Dem ministers at the party's autumn conference in Brighton seek to demonstrate to activists the achievements they are making as part of the coalition Government with the Conservatives.
Mr Clegg said: "So much of a child's future is determined before they hang up their coats on their first day at school.
"It is vital that we do all we can to make sure a child's potential isn't determined by the circumstances of their birth.
"That is why we will give thousands of two-year-olds access to free early years education over the coming years.
"Good quality early education gives children a head-start before they even start school and helps the most hard-pressed families who are struggling with the cost of childcare.
"The money we are announcing today will help nurseries and child minders get ready to deliver this revolution in early education."