Medical research in the NHS will receive extra funds rising to £1.2bn a year by 2008 under a 10-year plan revealed yesterday.

A new National Clinical Research Network will bring private and public sectors, and medical charities, together and the plan will fund specialist research institutes, similar to the National Cancer Research Institute. Gordon Brown said: "Our health budget is not just what we spend on the National Health Service but on medical research that is bringing new treatments and cures."

The health department said spending on medical research stood at £1bn and an extra £100m would be allocated to the NHS for research and development during the next four years. A spokeswoman said: "In addition, the Chancellor anticipates another £100m will be allocated to the Medical Research Council, bringing the total to £1.2bn by 2008."

The Royal College of Physicians said: "The college greatly welcomes the long overdue investment in clinical research, and the commitment to a 10-year strategy and specialist research institutes, which we hope will bring benefits to patients in the long term."

The Chancellor had earlier set out his plans to boost medical research at a meeting with industry leaders on Tuesday. Britain's two largest drug companies, GlaxoSmithKline and AstraZeneca, responded with announcements of new investments in research and development (R&D) at Hammersmith Hospital, London, and Macclesfield, Cheshire, amounting to £150m.

Mr Brown told the meeting that science funding would rise as a share of national income from 2005-6. The Government is anxious to convince the country's biggest technology companies that Britain is a favourable environment in which to invest. But Lord Sainsbury, the Science minister, admitted that an EU target to raise R&D spending to 3 per cent of national wealth by the end of the decade would be "difficult to achieve".

Peter Cotgreave, the director of Save British Science, said: "We were delighted when Gordon Brown said that skills, knowledge and technology are the key to the economy, and that he wanted to make the United Kingdom the best place in the world to do science. He said he would raise the proportion of national wealth invested in science... but he must invest that money wisely."