The state's health budget has been boosted by $1.34 billion to $15.1 billion next financial year.
Health Minister John Della Bosca said the funding boost was a response to the problem of an ageing population.
"The government is devoting the biggest slice of the state budget to health," he said in a statement.
Treasurer Eric Roozendaal has delivered a budget deficit of $1.3 billion for 2008/09, the first for more than a decade.
Overall, the record health funding will provide an extra 106 beds across the state, including intensive care beds at John Hunter, St George and Gosford hospitals, and new neonatal beds at The Children's Hospital at Westmead and the Royal Hospital for Women in Randwick.
Just under $12 million will go to 7,900 community-based residential and aged care places to take pressure off the health system.
In response to the Garling report on acute care in hospitals, $485 million will be spent over four years as part of the government's Caring Together initiative, Della Bosca said.
This would include $44 million for 500 clinical support officers, hired to free doctors and nurses of paperwork, $13.3 million for emergency physicians, $7.4 million for training programs to prevent bullying and promote a positive culture in hospitals and $6.8 million for 45 additional rural junior medical doctors.
The $603 million for health infrastructure will form part of a $2.4 billion, four-year plan, Della Bosca said.
"The government has built or rebuilt virtually every major hospital and emergency department in the state, but there is still more work to do," he said.
In his budget speech, Roozendaal said the hospital rebuilding program was "unprecedented in its size and scope".
A total of $17.7 million will be spent on six new medical assessment units for elderly and frail patients plus the expansion of an existing six units, creating 69 new beds.
Source: AAP NewsWire