The funding, published in the Welsh Government’s Final Budget 2025-26, will support the Flying Start programme to deliver childcare to two-year-olds across Wales.
The hourly rate for childcare providers will also be increased to £6.40 an hour.
“This is important to tackle child poverty and to help parents get in to work to help with the cost-of-living crisis,” said leader of the Welsh Liberal Democrats Jane Dodds MS, with whom the Welsh Government agreed the budget.
Welsh Labour ministers needed the help of at least one MS from the Welsh opposition to get their £26bn budget plans passed in the Senedd, according to the BBC, and Dodds is her party’s only Senedd politician.
The agreement also provides £5mn to local government to improve playgrounds and play facilities for children.
The extra funding for childcare was welcomed by the National Day Nurseries Association (NDNA) Cymru.
Chief executive Purnima Tanuku, said: “This new deal which has been struck is a positive step in the right direction for the early years sector across Wales and shows that the Welsh Government is committed to supporting providers delivering vital early years places.
“We have just surveyed our member nurseries in Wales and 89% of respondents told us that the previously announced £6 per hour Childcare Offer funding rate would not cover their costs.
“The new and increased rate will help close the gap which has opened up over three years of providers receiving the same rates as costs rapidly increased.
“Private day nurseries across Wales deliver high quality early years education and care for children under the age of two, supporting their development and enabling parents into work. They need to be sustainable so they can continue with this important work.
“As plans are developed for the Flying Start expansion, local authorities and the Welsh Government must work with providers to ensure the funding package takes into account all the extra costs of caring for our youngest children and are supported to be flexible to meet families’ needs.”
Meanwhile, sector organisations warned that a Department for Education update to guidance on the funded childcare in England offers threatens nurseries' survival.
The guidance re-emphasises that providers must ensure parents can take up a free funded place without needing to pay for extras, but Tanuku said: "In the current economic climate, taking away the flexibility for providers around charges could seriously threaten sustainability."
The Early Years Alliance added that it does "absolutely nothing to address – or even acknowledge – the fundamental financial challenges facing the sector".
The updated guidance states: "Parents must be able to opt out of paying for chargeable extras and the associated consumable or activity for their child.
"Providers should be mindful of the impact of charges on families, particularly the most disadvantaged.
"Providers who choose to offer the free entitlements are responsible for setting a policy on providing parents with options for alternatives to additional charges.
"This policy must offer reasonable alternatives that allow parents to access the entitlement for free, including allowing parents to supply their own, or waiving the cost of these items.
‘In all cases, these chargeable extras must not be a condition of taking up a free place. All parents, including disadvantaged families, must have fair access to a free place.
"A local authority should intervene if a provider seeks to make additional hours, voluntary services or voluntary consumables a mandatory condition of taking up a free place."
In addition, the government has announced a "targeted approach" to its next phase of early years funding from September to support delivery of new places children aged from nine months.
It includes a dedicated £75 million expansion grant, which the DfE claims is equivalent, on average, to an extra £80 per two-year old, and £110 per child under two, although final amounts of funding reaching providers will depend on local conditions.
Tanuku urged councils to avoid "unnecessarily complicated distribution methods", such as with a previous £100m capital funding pot, with only 5% of this distributed in the first nine months, adding: "We cannot afford to see the same delays with this important funding pot.”
Local authority allocations for the grant will be confirmed before the end of February.
