Chancellor Angela Merkel's ruling coalition of conservatives and centre-left Social Democrats agreed on Tuesday to allow the programme to run for 24 months for any firm that applies by the end of the year.
It also resolved to extend financial assistance to small businesses until the end of the year and relax insolvency laws in an effort to avoid cascading bankruptcies.
The shorter-hours programme, known as Kurzarbeit, sees the German government cover around two-thirds of workers' wages when employers slash their hours to save costs.
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The scheme was widely used during the 2008-09 financial crisis and credited with saving tens of thousands of jobs.
The programme is one of the main tools used by Berlin to shield Europe's top economy from the pandemic-induced downturn, accounting for a key part of the government's trillion-euro ($1.1 trillion) coronavirus support package.
At the height of the coronavirus lockdowns in April, some 6.8 million Germans received money through the scheme, the federal employment agency said.
To ease access to the programme, ministers reduced the requirements that companies need to meet in order to qualify for assistance.
German giants like Lufthansa, Volkswagen and BMW are among the many firms to have tapped the scheme.
Before the pandemic, German unemployment hovered at a record-low level of around five percent. It has since risen to 6.4 percent.
Other European economies, including France and Britain, introduced similar short-time working programmes to battle the economic consequences of the pandemic.
The scheme does not come cheap. When German economic output contracted five percent in 2009, an average of 1.1 million workers were placed on the programme, costing Berlin around €10 billion.
After maintaining a balanced budget for years, the German government has said it plans to borrow around €218 billion this year to help pay for its pandemic response.