Germany's central and state governments agreed on Monday to invest 1.9 billion euros ($2.34 billion) over five years from 2006 to create elite German universities on a par with Harvard or Yale.
The federal government would take on three-quarters of the annual 380 million euro cost, an education ministry spokeswoman said, after a meeting between Education Minister Edelgard Bulmahn and representatives from Germany's 16 federal states.
German Chancellor Gerhard Schroeder has declared education, research and development his priority this year and pledged new funds to forge elite universities.
His ruling coalition aims to increase spending on R&D to three percent of gross domestic product by the end of the decade from around 2.5 percent at present.
The elite universities will be determined after a competition, for which higher education institutes will have to apply this year.
The chosen institutes will receive their money from 2006.