Hundreds of low-cost homes for key workers are to be built on former hospital sites across Sussex.

The scheme involves the biggest sale of State land in England to date and is aimed at easing the housing shortage, particularly in the South-East.

The Department of Health has identified large swathes of former hospital land now surplus to requirements at sites including Southlands Hospital at Shoreham, Graylingwell at Chichester, St Francis Hospital at Haywards Heath and Hill House, Rye.

With the Government's hospital-building programme now in its latter stages, the NHS is keen to offload crumbling Victorian infirmaries as part of a £500 million sell-off announced yesterday by Deputy Prime Minister John Prescott and Health Secretary John Reid.

The land will be sold to housing associations or developers with a strict remit to build low-cost houses and flats for workers such as teachers, policemen and nurses.

It is understood the NHS would receive a market price for the property, although the cash would not be ring-fenced for Sussex health services.

Plans for the new homes will have to be approved by local authorities but it is expected most schemes will face little opposition.

If the spare land and assets are all sold off, it would also save about £60 million a year in running costs.

The sell-off is part of Mr Prescott's sustainable communities plan to regenerate towns and cities by using derelict or vacant land for housing and other uses.

A spokesman for the Deputy Prime Minister said no timescale had yet been agreed as the plan was still in its earliest stages.

The sites will be used for a mixture of housing, such as low-cost homes for sale, properties at affordable rents and others for sale at market value.

Research has shown Sussex is among the least affordable areas in Britain for first-time buyers and public sector workers.

Mr Prescott said: "This deal shows our determination to deliver more affordable homes where they are needed most, especially for key workers and young families.

"It will unlock major brownfield sites, secure more than 15,000 new homes and kick-start regeneration as part of a comprehensive programme to create thriving and sustainable communities across all regions of England.

"We are committed to protecting the countryside from the blight of urban sprawl through reviving brownfield land for development.

"That's why we are taking a new approach across Government to make sure the best possible use is made of surplus public sector land.

"I want the developments which take place on these important sites to be exemplar projects, leading the way in demonstrating best practice in creating genuinely sustainable communities."

As many as 150 houses could be built on the site of St Francis Hospital.

Dr Reid, who has agreed to give up the land, said a similar number could be built on the grounds of Southlands Hospital.

He said: "Much of the surplus land is in the south of England where there is a real shortage of affordable housing for key workers such as nurses, police and teachers.

"The receipts from the transfer of the land will be transferred to the NHS and used to fund buildings and equipment."