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The move confirms Prescott's desire to provide well-designed new homes as quickly as possible. It will also give a boost to providers of off-site manufactured homes such as housing association consortium Amphion.

It is expected the cash will result in around 5600 OSM homes – using techniques ranging from timber frames to modular units – being started in 2004/05.

Baroness Brenda Dean, chair of the Housing Corporation, said: "Forward allocations will also be extended over three years, as is presently the case in London.

"I think this is sensible. How can you expect a regional housing board to look at a strategy for a region without it being long term? We'll be able to give associations an indication as to where they will be over the longer term with their development programme."

Forward allocations will be extended over three years, as is now the case in London

Brenda Dean, Chair, Housing Corporation

The decision is an extension of the principles behind the £300m Challenge Fund unveiled last September by housing minister Lord Rooker. The fund pledged to build at least 4000 homes, a quarter of which had to be built using prefabrication techniques.

Martin Donohue, chief executive of OSM manufacturer Westbury, said the news was a "leap forward". But he warned that the government would need to bear in mind that the "gestation period" for prefab schemes was quite long.

In the letter to the corporation, Prescott is also understood to have signed-off the allocations for the upcoming round of approved development programme funding for 2003/04 – the first of the cash to be allocated by the corporation under the Communities Plan.