About 60 doctors were expected to graduate each year from the new school, which would open within three years.
"The status quo is not filling the need for extra graduates for the rural sector and equitable provision of health services for rural people compared to their urban counterparts," Mr Kelly said.
The proposal for a new school was initiated by the University of Waikato and Waikato District Health Board.
The Rural General Practice Network, which was established in the 1990s as a support network for rural medical practitioners, hoped the new school would address the imbalance between rural and urban sectors.
"[There is] an ageing workforce of GPs... and an over-reliance on recruiting international medical graduates."
The network's executive board consisted of general practitioners, nurses, and specialists to support rural medical workers in all areas.
The board hoped the new school would also accommodate a wide range of healthcare professionals.
"We want to ensure that this new school is multi-disciplinary and not just for doctors, but also for nurses, pharmacists, midwives, physios and all the health disciplines needed to ensure the first class delivery of health services in rural New Zealand."
Currently, there were approximately 600,000 New Zealanders living in rural communities, and a shortage of medical professionals willing to work there.
The Government intended to have the new school open by 2020.