The Government will cater for all infants with HIV or whose mothers are infected.
Deputy President William Ruto said it was the duty of the Government provide for the vulnerable newborns.
The national Government will liaise with county Governments to agree on how close to Sh1 billion meant for the infants will be used.
The funds have already been released to counties.
Deputy President William Ruto (right) in a meeting with Spanish Ambassador Javier Herrera discussing Health issues on vulnerable infants.
Mr Ruto spoke when he met Spanish ambassador to Kenya Javier Herrera, Head of Nutrition and Dietetics unit Rosemary Ngaruro and Dr Victorio Torres Feced, chief executive Vihda Association.
The funds will mainly be used to buy formula for infants whose mothers have agreed not to breastfeed in order to protect them from being infected.
A total of 100,000 children are born annually by HIV infected mothers out of whom 5,500 are orphaned at birth.
“We will address this issue as a Government in consultation with the county governments,” Mr Ruto said in his Harambee Avenue office.
The Deputy President said three ministries-Health, Devolution and Labour and Social Services-will address the plight of the newborns by coming up with a proper national intervention plan.
He said the budget line to cater for such vulnerable groups will be fully supported by the Government. The Spanish Government and the Elton John Foundation were also sponsoring a high impact nutrition intervention.
Earlier, Mr Ruto said the National Hospital Insurance Fund will be restructured and contributions pegged on earnings.
The Deputy President said once Parliament passes the Miscellaneous Amendment Bill, reforms will commence in earnest at NHIF.
“We want to ensure that those who earn more like the deputy president can pay for others who cannot afford proper healthcare.”
He was speaking when he met World Bank Country Director to Kenya Diarietou Gaye and Danish ambassador to Kenya Geert Aagaard Andeersen.
The two diplomats said the donor community was keen in partnering with the Government in funding healthcare projects and environmental conservation among other issues.
A working group between the Government and development partners will be formed to progress the partnership.
Mr Ruto assured the diplomats that the Government would improve security by providing the agencies with better equipment and transport.
It will also streamline procurement of security items.