The ECB also said it would buy debt with maturity as short as 70 days, compared with one year under previous purchases.
Short-dated Italian bonds were the biggest beneficiary, with yields plunging 12 bps to 0.40pc after rocketing to a more than one-year high above 2pc last week.
Italian 10-year bond yields fell 7 bps to 1.49pc, a near two-week low.
"The legal text on the PEPP revealed a possibility to buy a lot of e.g. Italian bonds," Nordea strategists said in a daily note referring to the ECB's bond purchase program to combat the pandemic crisis.
"Flexibility around the use of capital key and the removal of issuer limits are big steps and may be followed by other measures."
The ECB's moves comes after US policymakers announced a fiscal package of more than $2 trillion after extraordinary measures from the Federal Reserve this week threw a lifeline to small businesses. The Fed also started buying US corporate debt for the first time.
Bond buys were previously capped at 33pc of each country's debt but the ECB said that under the temporary Pandemic Emergency Purchase Programme (PEPP), these will not apply.
"In a nutshell, the decision removes virtually all constraints on asset purchases, in a further boost to the credibility of the ECB's commitment," said Frederik Ducrozet, a strategist at Pictet Asset Management.
The rally in Italian bonds spread towards other peripheral markets too such as Portugal and Greece where yields declined by 5-8 bps across the board.
Comparatively, yields in core European government debt markets such as Germany and France eased marginally with yields on 10-year German government debt easing only 1 bps to -0.30pc.