Politicians from the Social Democrats (SPD), Christian Democrats (CDU) and the Green party made the announcement at the state parliament in Wiesbaden on Tuesday, the Frankfurter Rundschau reports.
The money is to go towards the building of a school at a refugee camp in northern Iraq, homes for 330 refugee families and an orphanage for Yazidi children.
Construction on the school is planned to begin in 2017, with costs estimated at just under half a million euros. Renovation work on an already existing building will turn it into an orphanage for 25-30 children of Yazidi families who have been persecuted by terror group Isis.
The politicians said that they hoped to set an example which Germany's other 15 federal states would follow, and that German citizens would also head by contributing to refugee charities via Christmas donations.
SPD leader in Hesse Thorsten Schäfer-Gümbel proposed the idea after travelling to northern Iraq in February, where he met Syrians who told him that, if conditions did not improve, they would flee to Europe.
The ruling CDU/Green coalition in Hesse agreed to the plan, and after negotiations with the Foreign Ministry, got the go-ahead.
But Schäfer-Gümbel told reporters that, while it is not the responsibility of individual German states to engage in international aid, in a country “where there is no upper limit to suffering, there should be no upper limit to support.”