Malcolm Chisholm, the Scottish health minister, said he would make 20,000 available for those diagnosed with hepatitis C, with a further 25,000 paid to sufferers who developed conditions such as cirrhosis and cancer of the liver.
But the announcement put him on a collision course with Westminster which has ruled out making payments south of the Border. Now the Department of Health is expected to obstruct payments in Scotland, arguing that the Executive does not have the power to make such decisions.
Mr Chisholm said he intended to make payments to 568 hepatitis C sufferers registered with the Scottish Centre for Infection and Environmental Health (SCIEH).
On the division with Westminster, he added: "It’s obviously a disappointment to me because I want to get this issue resolved quickly. People will no doubt ask further questions but it should be self evident that it’s in the control of the government in London. It’s not something we can determine the timescale of, although we have made it clear to Westminster that we want this resolved quickly."
The Executive and Westminster are currently in discussions over the interpretation of schedule five of the Scotland Act, which states that benefits for injury and illness are a reserved matter. The debate is whether this would apply to payments to hepatitis C sufferers.
If Westminster decides that, even though health is a devolved matter, Scotland has no power to provide compensation there could be the unprecedented situation with the case going before the Privy Council in London.
Even if it is decided the Executive has the power to make payments, Westminster could clawback the money by stopping social security benefits.
Mr Chisholm said the Executive would be prepared to make 15 million available for payments to hepatitis C sufferers. However, the figure falls short of the 89 million recommended by an expert group he set up.
The expert group, chaired by Lord Ross, said that anyone diagnosed with hepatitis C as a result of contaminated blood products should receive 10,000 for stress, anxiety and social disadvantage, with a further 40,000 for those who had developed chronic hepatitis C and continuing financial support for those who had gone on to develop conditions such as cirrhosis of the liver.
Philip Dolan, chairman of the Scottish Haemophilia Groups Forum, said: " I welcome the acknowledgement that there is a case for compensation but the figure seems derisory and is less than the expert committee he set up recommended."
Nicola Sturgeon, the SNP spokeswoman, said: "Social security matters are reserved and such payments could be seen as benefits, but it is open to interpretation and I take the view that Scotland does have the power to do this."
A Scotland Office spokesman said: "Discussions between the relevant Whitehall departments and the Scottish Executive are continuing. We cannot predict a timetable for announcement of a decision but there will be no undue delay."