The cash will pay for 25 social workers to work in YOIs across England and Wales for another year, starting in April. So far 17 are in place, with recruitment to begin for the remaining posts.
Children's minister Beverley Hughes said social workers in YOIs can play a vital role in helping some of the most vulnerable young people, but warned that local authorities would have to take up the challenge themselves.
"I fully expect arrangements to be in place so that local authorities can take up the responsibility of funding these posts in future years," she said. "The DCSF will be working closely with all those involved to ensure this happens."
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