The planned Kinderbonus of €300 per child is to be transferred in two instalments of €150 each in September and October and will be paid to parents alongside child benefit (Kindergeld).
The Kinderbonus is part of a €130 billion economic stimulus package aimed at kick-starting the economy and supporting people in Germany.
The measures drawn up by, the grand coalition, made up of Angela Merkel's centre-right Christian Democrats (CDU) and the centre-left Social Democrats (SPD), include a VAT cut and support for businesses.
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Family Minister Franziska Giffey, of the SPD said it was a "good day for families".
Families with babies due to be born this year are also to receive the money because the Kinderbonus will be granted to all children eligible for child benefit in 2020, said Giffey.
Explained: How does Germany's Kinderbonus coronavirus payment work?
The bonus will benefit low-income families in particular.
The payment is viewed as a thank you to all the parents who had to take over the teaching and care of their children when schools and kindergartens closed to stem the spread of Covid-19, reported Spiegel.
The cabinet held the special session on Friday to approve the package because the VAT cut is due to be lowered as early as July 1st.
For this to happen, the approval of the Bundestag and Bundesrat is still required. They will also hold special sessions for this purpose on June 29th.
READ ALSO: What you should know about Germany's planned VAT cut
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