Newly elected prime minister Julia Gillard has pledged benefits of $9.9 billion for regional Australia to secure the support of two key independents.
Included in the package is $1.8 billion from the Health and Hospitals Fund dedicated to rural hospitals.
Other existing health and education funds will have one-third set aside for the regions, including those for general practice, skills investment and reward payments for improving schools.
In addition, the government will invest $1.4 billion in regional infrastructure, including a new $800 million for priority projects that communities nominate, and a $573 million boost to its promised Regional Infrastructure Fund to "unlock new growth opportunities" identified by committees.
Labor now promises regional areas will be prioritised, and will pay the same for their service as people in the cities.
Independent MP Tony Windsor said it was too good an offer to pass up - and has urged rural voters disappointed with him for putting Labor into government to realise it has been to their advantage.
"Through their various documents that they've put together, the admission is that they have neglected country Australians," he said.
Ms Gillard was named prime minister after independent MPs Rob Oakeshott and Mr Windsor announced their support for the Labor party in a minority government.
"Labor is prepared to deliver stable, effective and secure government for the next three years," she said at a press conference in Canberra.
"I know that if we fail in this solemn responsibility, we will be judged harshly when we next face the Australian people at the next election.
"Being held to that test is just the way I want it."
Opposition Leader Tony Abbott held a press conference shortly afterwards, pledging to hold Labor "ferociously to account". Read more...
Speaking in a press conference in Canberra, Ms Gillard pledged to work tirelessly to serve the Australian people and "forge a new paradigm" in federal politics.
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Ms Gillard said the results of the election showed the Australian people wished to hold the federal government more accountable than ever before.
"Can I say we live in a lively and resilient democracy, and it works," she said.
Ms Gillard said that the new parliament would be more open than ever before.
"To quote Rob Oakeshott, sunshine is the best disinfectant," she said.
"We've agreed to far-reaching reforms that make me as prime minister and our government and how it functions more accountable to the Australian people."
"Let's draw back the curtains and let the sunshine in."
Ms Gillard revealed she had spoken to opposition leader Tony Abbott after the two independents threw their support behind Labor.
"I acknowledge that Tony Abbott phoned me a short time ago to wish me well," she said.
"It can't have been easy for him, and I genuinely thank him for that."
Mr Oakeshott and Mr Windsor announced their decision at a press conference at 3pm today AEST.
Mr Windsor and Mr Oakeshott had been negotiating with both Ms Gillard and Opposition leader Tony Abbott since the August 21 election.
Queensland independent Bob Katter announced his decision to back the coalition in a hung parliament in an interview with journalists in his Canberra office earlier this afternoon.
Labor required just two of the three MPs to form a minority government, while the coalition required all three.
Ms Gillard will meet with Governor-General Quentin Bryce this afternoon and is expected to be sworn in as prime minister later this week.
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