China's Cabinet has set aside $1.6 billion for cities and regions that make significant strides in curbing air pollution.
The issue has increasingly become a priority for China's leadership and the fund will reward, not subsidize prevention and control of emissions, the Associated Press reports.
Citizens have voiced dismay with China's visible and increasing smog, which also hurts the country's image internationally.
Also on Wednesday, Chinese Xinhua News Agency said Beijing's city government announced it will shut down 300 polluting factories this year and phase out various industries in the hopes of improving air quality.
The bold moves come as President Obama and French President Francois Hollande promised to pursue "ambitious goals" leading to the 2015 Paris climate talks.
The only way to reach ambitious standards for greenhouse gas emissions, a White House official said on Monday, "is if countries like the United States and France can, over time, come to a common position, and bring in countries like China and India as well so that this is a truly global coalition that goes beyond simply the Kyoto coalition."