It will also try to provide the best home care possible to avoid admission to hospital.
There will be a shift to more telephone clinics to save families' and clinicians' time, allowing doctors to deal with more affected children.
There will also be a 24-hour 0800 phone line so families can get advice.
Young people with diabetes or who are obese will be asked to take part in health promotion programmes.
The project's staff will include a full-time endocrinologist, nurse, public health nurse and dietitian.
Director of endocrinology Wayne Cutfield drove home the need for the project, saying that without it, "within two years children will receive a totally inadequate skeletal care that today already fails to meet international and Australian minimum standards of care".
The result would be the development of diabetes complications such as blindness, renal failure, hypertension and heart disease.
Dr Cutfield said children's and young people's services were minimal, but the need was great.
International recommendations say young people should have up to five specialists visits a year - at present children are waiting up to five months for clinics.
"Current preventive activities have been prioritised down and will be completely lost in the foreseeable future."
The project was not simply the rejigging of existing services.
"It is a completely novel and more effective model that does not exist in other developed countries."
The project has three distinct strands - the management of Type 1 and Type 2 diabetes, and a healthy lifestyle plan.
Dr Cutfield said obesity, unhealthy lifestyles and a lack of co-ordinated services were resulting in "an inability to respond effectively to increasing diabetes".
There was a lack of support for children such as school and community group education and out-of-hours support.
A Herald investigation in April about obesity highlighted the epidemic facing NZ, in which one in seven pre-teen children is grossly overweight, leading to serious health problems such as Type 2 diabetes.
Unlike Type 1 diabetes, Type 2 is highly preventable, and linked to obesity, poor diet and lack of exercise.
Fat facts
Auckland children among least active in New Zealand.
14% of Auckland children are obese; worst off are Pacific Island (24.1%) and Maori (15.8%) children.
Number of Auckland children under 16 with Type 2 diabetes will jump from 380 to 500 in next two years.
New diabetes project will shift from being hospital-centred to community-based service.
Ministry of Health:
Provisional Results of the 2002-2003 National Health Survey
[PDF]
Herald Feature: Health
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