Councils will get £1m each to spend on social care to reduce the number of elderly patients occupying beds longer than needed.

The government will announce a further £170m funding for councils on Monday, to help them improve care and support for elderly people coming out of hospital.

The boost comes after a healthcare thinktank warned that the NHS stood no chance of hitting its £20bn efficiency savings target unless steps were taken to curb a rise in elderly patients occupying hospital beds longer than necessary.

Local government leaders welcome the one-off payment, which is to be spent over the next three months, but warn that the social care funding system cannot go on being patched up without fundamental reform.

Of the £170m total, £150m will be divided among the 152 councils with social care responsibilities and will be allocated through NHS primary care trusts, which must agree how the money should best be spent to ease pressure on hospitals.

The remaining £20m will be used to top up local funding pots for the disabled facilities grant, a means-tested award administered by councils to help with the cost of adaptations to enable people to continue living at home.

All the cash is said to be coming from in-year savings in the Department of Health budget. The £20m extra for the disabled facilities grant is being passed to the Department for Communities and Local Government.

Paul Burstow, the care services minister, said: “It is absolutely crucial that the NHS and local authorities work together to help people leave hospital when they are ready. The benefits are on all sides – patients get to go home with the support they and their families need, and hospital beds are freed up.”

Latest official figures show that 4,200 people are taking up hospital beds when ready for discharge. With beds costing about £200 a night, the King’s Fund thinktank has warned that this will prevent the NHS achieving its target of 4% annual savings, amounting to £20bn by 2015.

According to the thinktank, more than 70% of hospital beds are occupied by patients admitted as emergencies and one in 10 of them, typically aged over 64, stay for longer than two weeks.

Peter Hay, president of the Association of Directors of Adult Social Services, said the funding boost would be put to use within days. Equally welcome was the signal it sent that the government understood the need for the health, social care and housing systems to work as one.

However, Hay added: “Pleased as we are with this helpful initiative, directors are well aware that it is a small, valuable contribution to solving a problem which goes far deeper.”

Ministers are due to decide within the next two months whether to follow the recommendations of a commission led by the economist Andrew Dilnot, calling for radical reform of the funding of long-term care for elderly and disabled people.

The Treasury is known to be wary of the cost, which is an initial £1.7bn a year.

The health secretary, Andrew Lansley, said: “Savings have been made in the Department of Health’s budget which we are investing to help people leave hospital as quickly as they can, when they are ready, and to receive support at home.

“Older people often need particular support after a spell in hospital to settle back into their homes, recover their strength and regain their independence. This money will enable the NHS and social care to work better together for the benefit of patients.

“This additional investment for health and care services is the result of determination to deliver savings, maintain quality and invest in services that matter to patients and their families and carers during the critical winter season.”