The provisions go much further than initially expected, softening the force of the 1992 Further and Higher Education Act which created a divide between vocational and leisure courses.
Mr Mudie said: "The new funding will give local authorities fresh scope to bring adult education up to date. I want to see local authorities - not just some of our better LEAs such as Manchester, Birmingham or Cornwall - using this resource imaginitively to open up local opportunities to local people."
He pledged that the Pounds 9m was "just a start" and that new money would be available over the following two years to help councils, in collaboration with others such as colleges, schools, community education centres and training and enterprise councils develop lifelong learning strategies.
Sources within the Department for Education and Employment confirmed that this was the first stage in Government plans to abolish the "iniquitous Schedule 2", the legal definition that vocational courses had to meet under the 92 Act in order to win state funding.
Alan Tuckett, director of the National Institute of Adult Continuing Education, said: "This announcement is the best news for community-based learning since the start of the 1990s."
Research for the NIACE showed that while certificated vocational courses thrived under the 1992 Act, uptake of FE and LEA courses by pensioners and other marginalised groups fell by 40 per cent. Take-up has risen since then but it has never reached pre-1990 levels.
John Brennan, policy director for the Association of Colleges, welcomed the move but said more had to be done to provide the "introduction to learning" short courses which had encouraged people back to liflelong learning in colleges. "It is no good plunging people into full-time and part-time courses when they lack the confidence and facility to learn."
Education and Employment Secretary David Blunkett is likely to make further announcements of a big boost to college funding in November, at the annual conference of the AOC. New cash will be tied to partnership initiatives to promote outreach programmes, the gateway initiatives under the New Deal and National Traineeships.
George Mudie said local authorities would need to set tough targets to widen participation in adult learning. "They should dovetail with those of local authorities for the education of children, to ensure a truly comprehensive approach to learning through life for all."
Mr Blunkett, backing Mr Mudie, stressed the desire to see more work on local community centres and schools, the involvement of voluntary groups in adult literacy lessons and the use of new technology: cybercafes, the National Learning Grid and other programmes linked to information technology.
Many of these courses are being piloted for the University for Industry in areas such as Sunderland, where considerable new evidence has emerged to illustrate direct links between recruitment to adult leisure programmes and progression to lifelong learning.
Mr Blunkett said: "This is part of the Government's wider strategy for community learning ... we have put in place a strong, coherent package of measures that will help achieve the vision of a learning society we set out in The Learning Age (the lifelong learning Green Paper)."