The Health Service Executive (HSE) is seeking the return of €42m in funding from the sale of land designated for use by mental health services three years ago which it says is needed to plug a major hole in its annual budget.

The minister of state for mental health John Moloney said he has received assurances any money raised from the sale of the land will be "ring­fenced" for mental health provision, adding that this would be on top of any funding currently allocated to the area.

The HSE has recently warned it could shed up to 3,500 jobs next year to deal with proposed cutbacks of up to €800m in its budget, leading to a significant impact on services.

In a presentation to the HSE's board last July, its director of estates, Brian Gilroy, said the HSE projected a €30m overspend in its capital budget for this year, with outstanding commitments totalling €400m.

The land in question was sold between 2005 and 2006, generating €42.3m for the exchequer.

Gilroy said discussions with the Department of Health in relation to the deficit included the "recoupment of the proceeds of the sale of lands [designated for mental health services] returned to the exchequer, since the formation of the HSE".

These would "more than address this issue", he said, before noting that a submission on the matter had been lodged with the department.

It is understood around 14 major sites or parts of sites which currently house psychiatric hospitals have been identified for possible sale, which, along with other land, could realise between €600m and €900m.