Virginia Bottomley, Secretary of State for Health, also yielded to demands from social services leaders for the bulk of the allocation to be 'ring-fenced', or protected from budget raids from competing local authority services.
Her long-awaited statement on the level of funds for the care of elderly, disabled and other vulnerable groups and the system for distributing them came as a relief to local authorities which have been pressing for an announcement since July.
From next April social services departments will assume prime responsibility for assessing the needs of frail, elderly and other vulnerable people and purchasing appropriate care packages under the 1990 NHS and Community Care Act.
Labour immediately rounded on the planned level of funding as far short of what was required and said it would result in many languishing in institutional care unnecessarily.
However, social services leaders praised Mrs Bottomley for emerging from tough Treasury negotiations with a creditable settlement, given the expected squeeze on public spending this autumn. Many councils, though, fear cuts in other social services budgets may be inevitable.
The settlement spelt out by Mrs Bottomley at the annual conference of social services directors on the Isle of Wight, largely meets their concerns that the care system has been too heavily loaded in favour of the private residential sector.
English local authorities will receive pounds 539m to implement the strategy in the first year. This will comprise pounds 399m transferred from Department of Social Security budgets, and pounds 140m for start-up costs and administrative reorganisation. The total transferred from the DSS to local councils will reach pounds 1.56bn by 1996.
Mrs Bottomley presented the outcome of her protracted negotiations with the Treasury as a 'real triumph', discharging the Government's commitment to resource the community care shake-up fairly.
Toby Harris, chairman of the Labour-controlled Association of Metropolitan Authorities' social services committee, protested that next year's allocation fell short of its bid by pounds 200m.
Social services directors reacted more charitably. Peter Smallridge, incoming president of the Association of Directors of Social Services, said: 'We recognised that the public spending round would be difficult and we think that in the context of the present economic climate Mrs Bottomley has done well to get this money and to give us specific funds for the second and third year of implementation.'