German Chancellor Angela Merkel says the federal government will provide 1 billion euros (1.2 billion dollars) to cities and towns across the country in 2018 in an effort to make traffic more environmentally friendly.
The money is to be invested in finding traffic solutions to lower air pollution.
Many cities in Germany face driving bans because the air pollution is frequently above the allowed maximum levels due to the many cars' exhaust fumes.
The funds are to be invested among other things into electric buses, electric charging stations and a more environmentally friendly traffic infrastructure.
German Environment Minister Barbara Hendricks lauded the initiative as a first important step but called on the automobile industry to also support the government's action plan.