Further education funding chiefs have introduced an £89 million tonic for colleges facing financial crisis.
The Learning and Skills Council hopes that the extra cash will help create a more streamlined and effective system for the post-16 sector.
College chiefs, who until now have been critical of the LSC's approach to funding, have welcomed the move.
Most of the money will be delivered through grant allocations for the next academic year and average levels of funding will rise by 2.5 per cent, instead of the expected 1.6 per cent. The increase will bring an additional £88 million into the sector.
John Harwood, LSC chief executive, said the increase was possible because of the "renewed success" of colleges in increasing student numbers, which had improved overall efficiency.
"The council believes this is an important first step towards improving the level of funding for further education, although we recognise that much more remains to be done," he said.
The LSC has also reduced the amount of money taken away from colleges in funding penalties. It has decided to remove the financial clawback from colleges for shortfalls in student numbers where targets for the size of courses have been met.
The LSC has estimated that this will save colleges more than £1 million a year in clawback money and in reduced bureaucracy.
Sir George Sweeney, who chairs the LSC's red-tape task force, said: "This is the first step to cutting red tape and confusion for colleges. We promised swift but sensible changes. Following our consultation events this month, we will be able to look at real and deep cuts to red tape."
Geoff Daniels, LSC assistant director for learning programmes, said the aim was to simplify the funding system and raise levels of funding closer to those of school sixth forms. Figures from the former Further Education Funding Council for England show that nearly one-fifth of colleges are "financially weak".
Mr Daniels added: "The next step will be to adapt the allocation mechanism towards the targets that we have and encourage colleges to meet those targets."