Britain's international aid budget is to be used to help cover the costs of taking "thousands more" refugees fleeing the fighting in Syria, Chancellor George Osborne has said.
Mr Osborne said funds will be channelled to local councils to pay for housing and other services as part of a "fundamental re-think" of the UK's £12 billion-a-year foreign aid spending.
He said ministers would also begin setting out the arguments for extending RAF air strikes against Islamic State (IS) into Syria as part of a comprehensive strategy to tackle the root cause of the refugee crisis.
The announcement came as David Cameron prepared to set out details of his plan for a major expansion of the Government's programme to re-settle vulnerable refugees from the camps in the countries bordering Syria.
Mr Osborne said it was right that aid spending was used in support of Britain's national interest and he signalled a major shift in resources to the Middle East to promote stability in the region.
He said the Government's commitment to spend 0.7% of GDP on international aid meant that increased funding would become available as the economy strengthened.
"The foreign aid budget that we have can provide the support for the first year for these refugees, to help the local councils with things like housing costs," he told BBC1's The Andrew Marr Show.
"This budget is tied to our GDP, our GDP is going up, let's use the additional money very specifically on the challenges that Britain faces, one of which is this crisis on our doorstep.
"Five years ago we were spending £10 million on this region, now we are spending £250 million but it is still in, my view, not nearly enough."
While the move is likely to be welcomed by Conservative MPs who have criticised the Government's commitment to the 0.7% target, aid agencies may be less happy at the prospect of overseas aid money being used within the UK.
Mr Osborne refused to be drawn on how many additional refugees would be admitted but said an assessment would made as to what the country's infrastructure and public services could support.
He acknowledged the decision to increase the numbers - after Mr Cameron had previously argued it was not the solution to the refugee crisis - was in part driven by the pictures of the body of three-year-old Aylan Kurdi washed up on a Turkish beach.
"I think the photograph crystallised a growing sense in Britain that this was a crisis where Britain had to do more," he said.
At the same time, he said wider action was needed to address the instability in the region which had led so many people to flee, which meant dealing with the threat from IS - also referred to Isil or Isis.
While ministers were not prepared to risk a repeat of their Commons defeat two years ago on military intervention, he said they would begin making the case for extending RAF air strikes against IS in Iraq into Syria.
"We need to see support across the House of Commons for this action. It doesn't mean that everyone has to sign up to it. We have got to spend the coming period making that argument to people," he said.
He hinted that if Jeremy Corbyn - who is opposed to military intervention - triumphed in the Labour leadership contest, ministers could try to peel off support from Labour MPs opposed to the left winger.
"I think you have plenty of Labour MPs - people like (interim leader) Harriet Harman, I suspect that she's not particularly comfortable with the position the Labour Party took (in 2013)," he added.
However Conservative former defence minster Sir Gerald Howarth warned any attempt to intervene militarily in Syria would provoke a response from Russia, and said the time had come to talk to President Bashar al-Assad.
"At the end of the day, the man who is most likely to deal with Isil in Syria is President Assad," he told Sky News's Murnaghan programme.