The government is taking the step as a response to the recent terror attacks in France and Denmark, believing that Germany's current reaction capacity is too limited, reports Der Spiegel.
Germany needs “a robust unit that can confront such situations,” said the Christian Democrat (CDU) specialist for the interior, Armin Schuster.
Schuster said he saw it as “the duty of the federal government to be able to provide the German states with such a unit when necessary.”
The new unit will act as a bridge between the local police and GSG 9, the specialist counter-terrorism unit set up after the terror attacks at the 1972 Munich Olympics.
GSG 9 has been involved in several notable missions, including ending a hostage situation in Mogadishu in 1977 and rescuing a hijacked KLM flight in 1982 without firing a shot.
The new unit is going under the humorous working title GSG 4.5.
Its troops will be equipped with short- and long-range weapons, armoured vehicles, and vests capable of withstanding Kalashnikov fire.
Rise in terror investigations
Earlier this week the federal prosecutor announced that they are investigating increasing numbers of people believed to have returned to Germany after fighting with Isis in Iraq or Syria.
Some 106 returnees suspected of having fought alongside IS jihadists are being investigated in Germany in 68 preliminary or criminal inquiries, chief federal prosecutor Harald Range told reporters.
That compared to five investigations against eight suspects at the beginning of last year, he said, adding that he assumed the number would further increase as authorities seek to clamp down on suspects.