Mental hospitals across the State are to be closed and sold off, and the funds they generate are to be used to improve mental health services in the community.
The plan has been approved by Government and is to be implemented on a phased basis over the next 10 years.
Fifteen hospitals, some of them protected buildings, are to be sold. They include St Bridget's in Ballinasloe, Co Galway, and St Ita's in Portrane, Dublin.
Minister for Health Mary Harney said their closure may cause controversy in some areas, but the move was in the best interests of patients, the vast majority of whom would be better out of an institutional environment.
Anyone who suggested the closure of the hospitals would affect local employment was mistaken, she said, as multidisciplinary teams were to be put in place in each area to support patients moving to the community.
The plan is based on a framework for the development of mental health services over the next decade drawn up by an expert group and published yesterday.
Entitled A Vision for Change, it recommends the recruitment of an extra 1,800 staff to the mental health services.
It says one in four of the population is affected by mental health problems at some stage in their lives, but only a small proportion require inpatient care. Where this is required in future, it will mainly be in psychiatric units in existing acute hospitals. It recommends one acute inpatient unit with 50 beds for every 300,000 of the population.
It also envisages one "crisis house" for each 300,000 of the population, one intensive care rehabilitation unit in each of the four HSE regions and 20 high-support intensive care residential places in each of the four HSE regions.
These would cater for the small number moving out of mental hospitals who could not live in the community.
The report says there is also a need to increase from 20 to 100 the number of inpatient beds provided for children and adolescents with mental health problems.
It also says plans to upgrade and increase the capacity of the Central Mental Hospital should proceed as quickly as possible. Ms Harney said she would be bringing a memorandum to Government on this shortly.
The report says the new units will cost €796.5 million in capital funding. It also says €21.6 million in non-capital funding will need to be invested each year for the next seven years on staff, and an extra €151 million a year will need to be put into mental health in general.
This would bring spending on mental health up to 8.24 per cent of the total health budget. Last year it was 6.98 per cent, and the report says the decline in the percentage of the health budget spent on mental health in recent years is a cause for concern.
There has, it says, been a progressive decline in the percentage of total health spend allocated to mental health from 13 per cent in 1984 to 7.3 per cent in 2004.
"Ireland needs to invest in the mental health of its population, just as it invests in its education. This means prioritising early intervention and supporting families," it says.
The report, which has made close to 100 recommendations to improve services, has estimated that mental health costs the Republic €11 billion a year, most of which would be made up by lost output.
If services were put in place to help these people, it would be "a sound financial investment by Government".
Ms Harney said she was committed to implementing the plan and felt confident that funds from the sale of psychiatric hospitals could be ringfenced for mental health services.
The new plan follows a previous blueprint for mental health services published in 1984, which started a shift from institutional to community care for people with mental illness.