THE $107 million cut to Victorian hospitals has been reversed by Prime Minister Julia Gillard.
Ms Gillard announced the backdown in what she called a "rescue package" that could be passed on to hospitals immediately.
Hospitals have announced plans to cut about 20,000 elective surgeries over the next four months, close 350 hospital beds, shut overnight emergency departments and axe staff because of the funding brawl between the federal and state governments.
The hospitals affected ranged from the Royal Children's, The Alfred and Peter MacCallum to Bendigo, Colac and Lilydale.
It will be paid for through the extraordinary step of ripping away other money earmarked for Victoria for occupational health and safety and will "count against" future projects.
In a letter to Premier Ted Baillieu, Ms Gillard accused Victoria of "a disingenuous and purely political campaign".
She said the state was to blame for the cuts because it managed the hospital system and despite receiving other federal money, it had decided to hurt patients.
The federal backdown applies to Victoria only for this year.
Victorian Health Minister David Davis welcomed the return of the 2012-13 funding as a "first step", but said he would push for ongoing cuts to be returned over the next three years.
"The Federal Government now needs to follow up and restore the full amount of $475 million," he said.
Mr Davis said the cuts had crippled Victoria's health system and it would take a long time for the impact to be reversed, even with the return of this year's funding.
Federal Health Minister Tanya Plibersek said the money would be paid directly to hospitals and would bypass the Baillieu Government.
"The money will not pass through the hands of the Baillieu Government, which has proven itself to be a cruel and incompetent manager of the Victorian health system," she said.
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