The funding will support 25,000 people and is part of the new Universal Support programme announced in March.
Government will provide up to 12 months of provision, spending up to £4,000 per person, to help people move quickly into suitable work and sustain jobs long term.
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Secretary of state for work and pensions, Mel Stride said the programme should allow people to do fulfilling work with the help they need.
He said: “This is a significant milestone in our commitment to invest in employment support for people with health conditions.
“Through the reforms we set out earlier this year, we will continue to provide even more inclusive employment opportunities across the country as part of our efforts to unlock people’s potential and grow the economy.”
The number of people economically inactive because of long-term sickness reached a record high of more than 2.5 million in May this year according to the Office for National Statistics.
Ill health has also been found to be a leading cause of forced retirement in people over 50.
Patrick Thomson, head of research analysis and policy for thinktank Phoenix Insights, said the new funding would provide over 50s with better options.
He said: “The number of people out of work due to long-term illness is at record levels, and this issue is particularly acute among over 50s, where the average wealth of 50-64 year olds who are economically inactive due to ill health or disability is just 5% of those who have retired early by choice.
“More needs to be done to help this group to remain in or return to employment, or they risk falling short of money in retirement.”
Angela Matthews, head of policy and research at Business Disability Forum, also welcomed the funding.
Speaking to HR magazine, she said: “At one level, the government’s announcement is very positive.
“It sees a disabled person’s work, home, and ongoing health support as impacting one another, and we see each of those policy areas coming together at the same time in this announcement.”
However, Matthews said government needs to do a better job of linking this policy to others that would be helpful to disabled people and those with health conditions.
The Major Conditions Strategy, coming later this year will focus on how best to prevent, diagnose early, treat, and manage six major conditions including stroke and diabetes, chronic respiratory diseases, dementia, mental ill-health and musculoskeletal disorders.
Matthews said: “The Major Conditions Strategy does not look at the combination of health and work even though the home adaptations fund (Disabled Facilities Grant) mentioned in the announcement is increasingly unavailable to people in work.
“This means, in reality, today's announcements is asking disabled people to view employment in isolation of their ongoing disability and health management by choosing between becoming employed and having adaptations to their home funded.
“It is fundamentally unhelpful to employers recruiting and disabled employees who are considering moving into or returning to work.”
The government’s approach to supporting employment, she added, is also becoming a minefield for employers.
“HR teams are increasingly telling us that there are so many different schemes and announcements from the government about disability-related support in work that they no longer know which schemes have finished and which are still going,” she said.
“The government need to make the options clearer for HR and hiring managers to understand so that take up of these schemes is made easier for employers.”
