The three-year funding allocation will go on developing accessible childcare, providing some 40,000 short breaks for young people and advisory services for dealing with adolescence.

Campaigners hailed the announcement as a "huge step forward" which would improve the lives of 700,000 disabled children and their carers across the country.

Mencap chief executive Dame Jo Williams - a board member of the Every Disabled Child Matters umbrella campaign - said: "Currently, only one in 13 families get any form of specialist support in caring for their disabled child.

"This announcement means that by 2011, many more families will be getting the support they need. This is a huge step forward, but it also needs to be seen as a down payment on the longer-term change required."

Contact a Family chief executive Francine Bates added: "This new investment will start to transform the lives of families with disabled children all over the country.

"It shows that when the Government says that every child matters, this really does mean every disabled child too."

Professor Sir Al Aynsley-Green, Children's Commissioner for England, said the money was good news which would help large numbers of people.

"But I see this as a good down payment, a good start," he added. "There is still much to be done, not least because children and young people with disabilities and their families have had to struggle for far too long to ensure that their children receive the services and the support that they need."

Unveiling the funding package, Economic Secretary Ed Balls said: "Today we announce a set of actions that will make a real difference to all disabled children and their families, with £340 million over the next three years to improve vital services that will enhance their lives, underpinned by reform to make disabled children a national priority."