More than 4 million Britons will have diabetes by 2025, a health charity warns today as the government expands its "healthy towns" initiative, aimed at tackling the national problem of obesity.

Unhealthy diets and a lack of exercise will lead to a "diabetes explosion" in the coming decades, according to Diabetes UK, which suggests there will be a 46% rise in cases compared with current figures.

The expected rapid increase is linked to the growing number of overweight and obese people, a section of the public carrying a higher risk of type 2 diabetes. Diabetes sufferers can face serious complications such as heart and kidney diseases, blindness, and amputation.

In his response to Diabetes Week, the health minister Ben Bradshaw will today open up the bidding for local authorities to submit applications for £30m of grants over the next three years. Plans for the "healthy town" project include encouraging the creation of more cycle lanes, walk to work and school schemes, and healthy food. Towns will be able to bid for up to £5m, if they have already shown a commitment to a more healthy environment.

The initiative is part of a larger strategy announced in January and aimed at cutting obesity. In a statement, Bradshaw said: "The core of the problem is simple - we eat too much and we do too little exercise. The solution is more complex." But he acknowledged that it was hard to "avoid obesity in the modern world".

About 2.3 million people in the UK have been diagnosed with diabetes; that figure is projected to rise to 4.2 million by 2025. Another 500,000 have the condition but are unaware of it. People who are overweight are more likely to be at risk of developing type 2 diabetes, a condition linked to lifestyle. Type 1 diabetes is usually diagnosed in childhood.

Douglas Smallwood, chief executive of Diabetes UK, said the huge increase in cases would put extra pressure on the NHS and increase healthcare costs. At present, the health service is estimated to spend about £10,000 a minute treating diabetes and its complications. "These new figures ... confirm that diabetes is one of the main health challenges facing the UK today," he said.

Tam Fry, board member of the National Obesity Forum, said: "The real tragedy of this increase in type 2 diabetes is that so many of them will be children with what is essentially a mid-life condition."

In 2006, the Department of Health predicted that more than 12 million adults and a million children in England would be obese by 2010 if no action were taken.