Culture secretary Jeremy Hunt said it was part of a £1bn strategy to encourage young people to take up sport – as pledged in the 2012 Games bid.
Mr Hunt said despite huge investment of public funds since winning the right to host the Games, participation by young people in sport has been falling. He said a “radical change” in policy was needed to address the problem.
Under the five-year, Youth and Community Sport Strategy, Sport England will help set up some 4,000 clubs where expert coaches will run sessions to create ties between schools and existing local sports clubs.
Already, 2,000 football clubs have pledged to be linked to secondary schools by 2017, in rugby union 1,300 clubs, cricket, 1,250 clubs and rugby league and tennis 1,000 clubs each, according to the government.
In an attempt to give greater public access to school sports facilities – three-quarters of sports halls and artificial pitches and a third of swimming pools in England are located on school sites – £10m of funding will be available.
Source: Sport England
A further £100m will be invested in creating the clubs and tackling the decline in sports participation when people leave school.
Of this, £50m will be invested to boost sport provision at further education colleges and universities with funding for a full-time sports professional at at least 150 further education colleges.
Between 2013 and 2017 around £450m will go to sports governing bodies to help develop their sport plans but their funding will be allocated on a “payments-by-results” basis.
Mr Hunt said: “Our bold approach will see money going to organisations that deliver on youth participation, but also withdrawn quickly from those which fail to meet agreed objectives.”
Sport England Chief Executive Jennie Price said: “Changing the sporting behaviour of a generation is a major challenge, which has not been achieved by any other Olympic host nation.
“With a new focus on young people and an even tougher, Government-backed regime of payment by results, Sport England and its partners are determined to deliver.”
The money comes from the Lottery and government funding through Sport England – £200m of which was from the current Spending Review settlement.
Source: Sport England