Susanna McCorry, the council's cabinet member for social care and health, said the improvements would enable Birmingham council to house 200 more children within the city instead of sending them to neighbouring authorities.
Another 1m will be spent on encouraging people to become foster parents.
Birmingham's budget granted social services a recent 13.5m increase. Of this, 3.5m will be spent on children's services.
McCorry brushed off calls for her resignation following the recent deaths of three children involved with social services.
Last year the department was awarded a zero-star rating by the Social Services Inspectorate, which said children were not being served well by the team.
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