In its latest ambitious social scheme, the government of President Luiz Inacio Lula da Silva earmarked 200 billion reais ($69 billion) over 20 years to get poor families into planned
homes and out of violent shantytowns or "favelas", that often lack sewers and running water.
"Unless we reform housing, people have no other option," Erminia Maricato, executive secretary of Brazil's Ministry of Cities, told Reuters on Friday.
The plan, first reported in Friday's edition of the Correio Braziliense newspaper, comes as analysts expect Lula to unveil more infrastructure projects in 2004 to create construction
jobs and narrow the gap between rich and poor.
Lula's year-old government has failed to meet a host of social targets in 2003 amid economic stagnation, high unemployment and public spending cuts.
The new plan will not increase spending but channel existing investment away from middle-class housing to cover a current shortage of 6.6 million mostly low-income homes.
A quarter of residents of Brazil's biggest cities Sao Paulo and Rio de Janeiro currently live in favelas in shacks or cinder block homes. That rises to 40 percent in cities like Recife in the northeast.
The slums threaten to pollute aquifers and eat up green spaces through land invasions.
"Our cities are becoming unworkable with up to 50 percent of residents cut off from government and the private sector"
Erminia Maricato, executive secretary of Brazil's Ministry of Cities
Favelas are often outside the control of state agencies and police forces. They have weak links with the formal private sector, with most activities going untaxed and uncontrolled.
"Our cities are becoming unworkable with up to 50 percent of residents cut off from government and the private sector," said Maricato.
The new plan would seek to improve conditions for 12 million people already living in slums and rundown inner-city housing, bringing paved roads, water and electricity.
The federal government plans to divide costs for the subsidised homes with states, towns and the private sector.
During the next four years the scheme will focus on the nation's 11 biggest cities, which have 40 percent of its population and 90 percent of favela residents.