David Blunkett, the Education and Employment Secretary told this week's Labour party conference that the money would help up to 40 of the most deprived local authorities in England over the next three years.
"The money will be focused on those areas where too many young people have lost contact with education, training and work. I am determined that no young person will be written off, and no one is beyond reach. If we lose young people at 16, we risk condemning them to a life of poverty and unemployment, with all the consequences in terms of crime and fracturing communities."
He said the cash would go to organisations in touch with what was happening on the ground and that young people trusted.
The Neighbouring Support Fund would be directed towards local authority areas which had a low take-up of post-16 learning.
The National Association for the Care and Resettlement of Offenders, a member of a coalition of voluntary sector training and education providers, which aims to combat exclusion, welcomed the plans.
Craig Harris, director of education and employment, said: "The government is right to make tackling disaffection among 16- and 17-year-olds a priority. The links between disaffection and crime, and particularly between poor education and crime, are well established ... almost half of prisoners say they left school before the age of 16."
Rathbone CI, the private training provider, is one of the charities to be funded under the scheme. It said projects would focus on giving young people opportunities to develop their self-esteem, skills and knowledge, and to help them to overcome barriers to seeking careers advice and learning and training opportunities.
Natfhe, the lecturers' union, acknowledged the progress that the government had made in the funding of further education but said there was still some way to go. "We hope that in the next comprehensive spending review the government continues to expand resources in both further and higher education.