A £200 million boost for the building of more adapted homes for the elderly and disabled will form part of a major shake-up of the care sector, the Government said.
The five-year fund, which ministers believe will help provide an extra 6,000 properties, will form part of the Care and Support White Paper due to be published on Wednesday.
Health Secretary Andrew Lansley said it was vital to ensure the growing elderly population had a better chance of remaining independent and ease pressure on the severely stretched care home sector.
But the announcement came as the Government faced fire from campaigners over its failure to commit to funding a cap on care costs for individuals despite confirming its support in principle for the policy.
A progress report to be published by ministers next week alongside the White Paper will give support in principle to the recommendation of a review of services in England to limit the amount any individual must contribute.
But it will say that a decision on whether the £1.7 billion a year policy can be afforded will have to await the next spending review in 2013/14 - making reform unlikely until after the next election.
The move sparked a political row, with Labour accusing ministers of abandoning cross-party talks and "kicking the issue into the long grass" and charities saying it had failed to address the looming crisis.
Officials said providing properties tailored for the disabled and infirm would not only help people stay in their own homes for longer but also relieve the pressure on carers.
Ministers fear the market for such properties has been particularly squeezed by the recession.
Mr Lansley said: "The vast majority of us want to stay in our own homes as we get old and we want to stay independent.
"We won't be able to cope with running up and down stairs and we might not be able to get in an out of the bath - so we're giving people the opportunity to downsize or choose different housing.
"We want to see more supported housing built - so people can live in adapted homes independently.
"Demand for supported housing will increase as a growing proportion of people over 65 are homeowners. It makes sense for us to bolster the housing market so we have more suitable housing in the next few years."
The Health Secretary was yesterday forced to defend the Government's approach to long-term funding amid criticism from charities and the Opposition.
A £35,000 cap was recommended last year by the review chaired by economist Andrew Dilnot - with pensioners expected to take out insurance to cover that sum and the state covering the balance.
He also suggested that people with assets of up to £100,000, rather than £23,000, should qualify for taxpayer help.
The Government's response was originally due last autumn but has been delayed over Treasury concerns about the affordability of the shake-up amid severe cost-cutting efforts to control the UK's record deficit.
Mr Lansley told the BBC: "You can't be confident about the implementation of a cap on the costs that people have to pay, unless you are also clear about how you meet the costs."
Age UK welcomed the backing of the Dilnot blueprint but urged ministers to make more concrete commitments.
Charity director general Michelle Mitchell said: "If the Government accepts the Dilnot recommendations in principle that is definitely a step forward and welcome, but with care in crisis now it is not nearly enough.
"The Government must set out the process by which it will make the all-important decisions about funding social care, including timescales and milestones. That is the very least older people and their families will be looking for next week."
The Alzheimer's Society's Chief Executive Jeremy Hughes, reacting to the news, said the care cap agreement in principle was "meaningless", saying: "This empty promise also ignores the separate problem of underfunding of care as a whole. Some people are struggling with no care and no assets - for them a cap on costs is useless
"Further bickering between politicians will be a catastrophic failure of political leadership as families continue to struggle to care for people with severe disabilities. It is time for all parties to commit to a real public discussion about how we pay for the costs of care and make the costs for families fair. We cannot afford to delay any longer.".
Shadow health secretary Andy Burnham said he was pleased with the "small measure of progress" of a commitment to a cap but said it was meaningless without agreement on how to fund it.
"This decision to go down this separate route and do their own report reflects a decision to put the reform of the funding of social care on a slower timetable," he said, insisting the Opposition was still open to a return to cross-party talks.
Mr Lansley said the progress report was "an accurate reflection of the progress we have made and a basis for further talks in the future" and said he hoped they could resume - with added input from non-political campaign groups.