Childcare allowances worth up to £2,000 per child are to benefit as many as 1.9m working families.
The online, tax-free scheme will be available to parents with children aged up to 12 and will come into force in September 2015.
Following a public consultation, the government has agreed to increase the amount on offer by £800 from £1,200 originally announced.
The measure, which will also benefit self-employed workers, was unveiled by Prime Minister David Cameron along with his deputy Nick Clegg.
Cameron said: “This is about helping all families, but particularly those families that do feel their finances are squeezed, I want to give families greater stability, greater peace of mind, greater security.”
Labour’s shadow minister for Children and Childcare, Lucy Powell, said: “Of course any childcare support is welcome but this government has done
nothing in this Parliament to help parents experiencing a cost-of-living crisis.
“Childcare costs have spiralled by 30% since 2010 and the Tories have rejected Labour’s plan for 25 hours free childcare for working parents of 3 and 4 year olds.”