Schools will be put under greater pressure to improve results for children in care after they start receiving the pupil premium, education minister Tim Loughton has warned.
The Tory minister has demanded action after new figures show the gap between the exam performance of looked-after pupils and their peers has grown.
England's 64,400 children in care will be eligible for the new pupil premium. Schools will receive #163;430 a year for each to spend on their books - #163;27 million nationally.
Mr Loughton told MPs that once the premium comes into effect in September, teachers will have to "produce the goods" and show the money has been spent wisely.
Statistics published last month report that last summer just 12 per cent of looked-after children achieved the floor target of five good GCSE grades, including English and maths - compared with 53 per cent of all children. Just 36 per cent scored the expected level at key stage 2.
The performance of looked-after children in schools was almost identical in 2009, but because the overall pass rates have improved, children in the care system have fallen further behind. At key stage 4, the attainment gap is 41 per cent, up from 40 per cent three years ago.
"Their attainment must increase, especially now schools are getting additional money," Mr Loughton told the education select committee at the end of last year. "We want to see that where the money is being spent, the goods are produced. Our absolute priority is making sure children in care achieve educationally."
He said poorer-performing authorities would be forced to follow the "best practices" of the most impressive, such as Ealing in west London, where 12 per cent of children in care go on to university.
But funding currently given to reduce the gap between looked-after children and their peers will be halved by 2014. The Care Matters grant will be cut by 48 per cent - from #163;54.9 million to #163;28.2 million - and will not be "ringfenced".
Children in care also benefit from the Personal Education Allowance, worth around #163;500 a year, which is spent on extra tuition, extra- curricular activities and computers.
The pupil premium for looked-after pupils will be given to their local authorities, which will then pass the bulk of it on to schools rather than straight to heads because these children are often moved regularly between schools.
Natasha Finlayson, chief executive of The Who Cares? Trust, said: "There are no excuses for poor performance by looked-after children, but there is also no mysticism about what makes the difference.
"Examples of good practice are well established. The poor local authorities just don't do these things. There's so much research and analysis which has been done - schools should be doing a lot better."
Children in care
Barriers to attainment
Some 73 per cent of school- age children looked after continuously for 12 months have some form of special educational needs.
The rate of overall absence for children looked after continuously for 12 months at 31 March 2009 was 6.2 per cent, slightly lower than the rate for all children
In the 200809 school year, 100 children who had been looked after continuously for 12 months at 31 March 2009 were permanently excluded from school; 7.9 per cent of children looked after continuously for 12 months at the same date who were aged 10 or over had been convicted or subject to a final warning or reprimand during the year.
Around 0.58 per cent of children looked after continuously for 12 months who attended secondary schools were permanently excluded, compared with 0.17 per cent for all children.