A royal commission into abuse in state care in New Zealand has been expanded to include those abused by faith-based institutions such as churches and religious schools, after campaigning by survivors.

Prime Minister Jacinda Ardern said there had been overwhelming appeals from those abused by religious institutions since the initial inquiry – the largest in New Zealand’s history – was announced in February.

“Extending the scope was one of the most most strongly argued issues in the consultation process and it is important to this government that we listen to the voices of those victims,” said Ardern. “We’ve got a moral duty here.” The royal commission has received more than 400 submissions on a draft of its terms of reference.

At least two of New Zealand’s major churches have already agreed to work with the commission, Ardern said, and the inquiry would look into all forms of abuse including “physical, sexual, emotional and psychological abuse, and neglect” as well as “inadequate care or improper treatment that resulted in serious physical or mental harm to the person”.

The New Zealand Catholic Bishops Conference welcomed the expanded scope of the inquiry, as did Anglican Archbishop Philip Richardson. “Our primary concern is for the needs of those whose lives have been impacted by abuse,” Richardson told RNZ. “We see this commission of inquiry as one way we can put that faith into action, and our hope is that this broader inquiry will provide a pathway to healing and wholeness for all concerned.”

The investigation window of 1950 to 1999 will be widened now that faith-based institutions have been included, and the budget has been boosted to NZ$78m (£40m) over four years, NZ$15m of which has been set aside for counselling and support.

As well as investigating churches and religious schools the inquiry will include youth detention centres, psychiatric hospitals and orphanages, as well as any government care services contracted out to private institutions.

Prisons and sports organisations would be excluded, despite a campaign for them to be investigated as well.

Former governor general Sir Anand Satyanand, who is chairing the inquiry, said the commission would have some powers to compel institutions and individuals to give evidence. Compensation claims would not be handled by the inquiry, but the historic claims unit, already in operation.

The first report into abuse in state care will deliver its findings in 2020, and the final report into state care and religious abuse would be delivered in January 2023.

Ardern said her government was willing to apologise to survivors if this was called for.

The move to expand the inquiry was welcomed by the Human Rights Commission, the children’s commissioner and survivors, who said it was long overdue.

More than 100,000 New Zealand children and adults were held in state institutions between 1950 and the 1990s, and many suffered serious sexual, physical and psychological abuse.

How many have been abused by religious institutions is unclear at this stage, Satyanand said, but victims were in the many thousands.

The inquiry will begin hearing evidence in January 2019, and will be run along similar lines to royal commissions held in the UK and Australia.