A decision on the £25 million fund Prime Minister David Cameron set up last year will not be made until at least 2016-17, forcing victims and their families to wait at least another 12 months.
The problem of contaminated blood meant many people contracted HIV and hepatitis C during the 1980s through blood transfusions.
An inquiry by Lord Penrose into the transfusions before 1991 found patients were inadvertently infected during the 1970s-80s leading to the deaths of at least 2,000 people.
On 25 March Mr Cameron apologised and pledged £25m to help put in place a proper compensation package.
But in a statement on Friday, Tory minister Lord Prior said: “While no decisions have yet been made on how this money will be spent, I must emphasise that the money will not be used for administrative costs, but will be used appropriately to support any transitional arrangements once we have consulted on how a new scheme might be structured.”
He went on: “Transition to a reformed scheme remains a priority for this government. Decisions on the overall DH budget from 2016-17 onwards will be determined as part of the forthcoming spending review.
“While I understand that beneficiaries to the current schemes may be frustrated by this wait, this is an extremely complex and sensitive area and any reform plans must be carefully considered before a consultation can be launched.”
The delay is to be taken up by SNP Glasgow South West MP Chris Stephens, who has been approached by constituents affected by the issue. He said: “I have rightly been contacted by constituents with very real concerns on the lack of progress on this issue, this adds considerably to the stress of those who lost loved ones due to infected blood.
“Any delay compounds the original error, and I will be tabling written questions to the Secretary of State for Health seeking answers as to what is causing this unacceptable delay.”
John Prior, 41, a civil servant from Moodiesburn, Glasgow, who suffers from haemophilia and contracted hepatitis C from infected blood transfusions in the late 1970s said: “My message to David Cameron is that this situation, the biggest disaster in the NHS, could be sorted out tomorrow if he wanted.
“All it takes is a few e-mails, the tick of a pen.
“He can find the money for wars and billion of pounds get spent on overseas aid but he is doing nothing to help his own people.
“It is mental torture getting your hopes up with every announcement just to have them dashed.”
Philip Dolan, convener of the Scottish Infected Blood Forum, said every government had stalled on addressing the issue. He added: “This is yet another delaying tactic we’ve seen for years and years by every government.
“Setting up the £25m fund was just another way of Westminster avoiding facing the reality of the situation that people are suffering now.
“We want to see an independent separate fund set up in Scotland. Present structures don’t take into account how needs in Scotland can be different from those in central London in terms of factors such as higher heating bills and distances to be travelled in remote areas.”