David Blunkett, the Secretary of State for Education, said the money would help them to recruit a further 61,000 students. He set a new target of an extra 100,000 higher education students by 2002 - the previous target was 80,000.
Mr Blunkett said he expected universities to increase their efforts to attract more students from poorer backgrounds and from groups which are under-represented in higher education. Around half of the 100,000 students will be part-time and access funds for poor students will be increased.
When ministers introduced tuition fees of pounds 1,000 a year from this term, they argued that they wanted to safeguard standards and widen access.
Mr Blunkett said: "This extra money is designed to reverse the serious decline in funding over the past decade. It will enable universities to maintain their position among the world leaders for quality and excellence."
He added: "It is because we have modernised funding and introduced a fair new system that we have been able to provide these substantial new resources.
"In return for the pounds 5bn [total budget] higher education institutions will receive in each of the next two years, we expect resolute action from them to broaden access to under-represented social groups."
The Government confirmed that colleges at Oxford and Cambridge universities will lose around a third of the value of the extra grants they receive to support the tutorial system and college facilities.
The pounds 35m they receive will be incorporated over 10 years into the two universities' central grants. But the Government expects the universities to make up the loss by winning more money from increased research funding announced earlier this year.
Tom Wilson, head of the universities' department at the National Association of Teachers in Further and Higher Education, said: "Today's announcement is a breakthrough for the new universities who take the lion's share of part-time and access students.
"They have traditionally played an important part in the education and training of working class students. This announcement marks a new era of genuinely equal opportunities for all."
But the Liberal Democrats said the new funds fell well short of the amount recommended by Lord Dearing in his report, which recommended tuition fees.
Phil Willis, the party's higher education spokesman, said: "The resources do little more than meet the additional cost of 100,000 extra students by the year 2002, estimated at pounds 400m."Reuse content