Patients infected with hepatitis C after being given contaminated blood by the NHS are to receive at least £20,000 each in compensation.
The payouts will be made to patients infected before 1991
Health Secretary John Reid said patients who have gone on to develop advanced forms of the disease will receive another £25,000.
People who contracted the disease from infected patients are also in line for compensation.
However, the families of patients who died from the disease before 29 August 2003 are to be excluded.
Under the scheme, payments will only be made to patients who were infected with hepatitis C before September 1991 and who were alive on 29 August 2003.
People infected with hepatitis C through contaminated blood products have campaigned for more than 20 years for compensation.
More than 1,000 people who contracted the disease in this way have already died.
Thousands of people received HIV and hepatitis C contaminated blood in the late 1970s and early 1980s, although some cases may have occured even earlier.
It is believed that every haemophiliac who received regular blood infusions around this time was infected with hepatitis C. Many also contracted HIV.
Some other patients regularly receiving blood products, or others simply getting a one-off transfusion, were also left infected.
Heat treatment of blood to kill the viruses was finally introduced in 1985.
Donated blood is now screened using modern techniques for both HIV and hepatitis viruses.
Mr Reid said compensating these patients was the right thing to do.
"I felt it was important that English hepatitis C patients should receive these payments on compassionate grounds.
"It's clear that providing assistance is the right thing to do.
"I believe that these are fair and reasonable payments and I hope that they will help alleviate some of the problems people who have been affected in this way are experiencing."
He said the payouts would not affect these patients' social security entitlements.
Mr Reid will set up an independent body to administer the scheme.
It is expected to be up and running by April and is due to start authorising payments soon afterwards.
"We will be working with organisations such as the Haemophilia Society and Hepatitis C Trust on this to help ensure the procedures are as user friendly as possible," Mr Reid said.
The Haemophilia Society criticised the amount of money on offer and the fact that the families of those who have already died would not receive compensation.
"The government's decision to exclude families who have been bereaved as a result of hepatitis lacks compassion and is a bitter blow to those who, surely, have suffered the greatest harm from this tragic treatment disaster," said Karin Pappenheim, its chief executive.
Harriet Bullock, whose husband Ken died five years ago after contracting hepatitis C from contaminated blood, also criticised the package.
"I'm pleased the government has recognised the issue of hepatitis C among the haemophilia population and the misery that contaminated NHS blood products has caused.
"But I don't understand why they have excluded the dependants of those who have died."