The research will be carried out through NHS and university partnerships, managed by the National Institute for Health Research, including collaboration with industry and charities.
The pot of money - the largest single allocation of Government cash for early-stage medical research - will be spent over the next five years.
It comes from a £4 billion fund for medical research announced in the Comprehensive Spending Review.
Prime Minister David Cameron said the investment will have a “huge impact on the care and services patients receive”.
The PM said:
A strong competitive science and research base is a crucial part of securing sustainable economic growth and creating jobs of the future, and we have some of the best scientists and facilities in the world.
This investment will help ensure we continue to be at the cutting edge.