Fears were growing in the science community this week that a £200 million boost for clinical research might lead to cuts in other areas of research.
Following the surprise budget announcement last week that medical research funding would rise from £1 billion to £1.2 billion by 2008, John Reid, the health secretary, this week confirmed that the National Health Service would invest an additional £25 million each year for the next four years in clinical research, totalling £100 million.
Mr Reid said the announcement represented the "largest ever sustained increase in NHS R&D funding". But a senior source close to the Department of Health said: "While this sounds promising it is important to point out that no additional money for research has been allocated to the department.
This is an internal transfer of funds from the NHS that will not increase the overall percentage spend on R&D."
There are fears that the situation could prove damaging for the other research councils.
No definitive announcement about Medical Research Council funding for clinical research has been made. But it is widely assumed that the council will receive £100 million extra funding to bring the overall government health budget to £1.2 billion.
The source said: "If the spending review settlement is not generous, the Office of Science and Technology may be faced with an obligation to provide the MRC with this £100 million budget, while leaving all the research councils, including the MRC, deprived of funds to perform their existing research."
A spokesperson for the OST said: "The obligation is to provide £100 million for medical research. How that is split between research councils is yet to be decided.
Announcements about spending review allocations will not be made before the autumn."
The new clinical research initiative will focus on Alzheimer's disease, stroke, diabetes and mental health. It will also fund work into developing new medicines for children.
Colin Blakemore, chief executive of the MRC, said: "The details of the financial arrangements with the DoH and the OST are yet to be finalised, but I'm confident that the MRC will be able to play a strong part in this initiative."
He added: "This is welcome news for the MRC and medical research, but most of all for the patients who will benefit as a result."