The scheme, entitled Healthy Start, will offer parents weekly vouchers worth £2.80 for each child under four years old, which they can use to buy fruit and vegetables, milk and infant formula. Children under one will get two vouchers.
It is the first time fruit and vegetables have been directly subsidised through such a scheme, but milk's continued central role is viewed as renewed support from the UK government over its importance for child nutrition and growth.
That will be chalked up as a victory for the dairy industry against a growing number of anti-dairy campaigners.
Dairy industry officials welcomed the Healthy Start initiative, which comes only a few weeks after they signed up Britain's biggest supermarket, Tesco, to promote the health benefits of milk.
Jim Begg, director general of industry association Dairy UK, said: "This initiative will take the place of the current welfare scheme which provides around 200 million pints of milk per year to low-income families. It is a simple system which gives a clear message to families that milk, along with fresh fruit and vegetables, is vital for a healthy start to life and a healthy future."
Milkmen, now a threatened species on the UK streets, may also get a boost from Healthy Start. Figures show they supply 40 per cent of milk subsidised under the current Welfare Food Scheme, something they hope to replicate.
Competition will come from supermarkets and some 20,000 independent retailers who have also signed up to Healthy Start, more than support the current welfare scheme.
Wherever the milk is sold, the initiative builds on a successful promotion push by the dairy industry.
Tesco is set to place signs throughout its stores to encourage women to drink more milk, after signing a deal with the UK Milk Development Council (MDC) to help educate consumers about milk's health benefits.
More than 90 per cent of UK consumers do not know the fat content of milk, and half of those asked over-estimated fat content by more than six times, according to recent consumer research by the MDC.