Several projects will be merged to streamline investment programs, and funding for federally recognised Black Spots will rise from $110 million to $150 million each year.
Infrastructure Minister Catherine King said the Roads to Recovery funding would begin next year and rise gradually from $500 million to $1 billion annually.
Ms King said the increases would be phased in over the forward estimates to avoid pressure on inflation.
While Australians spend most of their time driving on local roads, councils were finding it hard to keep up with the costs of wear and tear, she said.
"I live in the country, I know just how hard it is for our local councils to keep up with the maintenance and improvement of our local roads," the Ms King told reporters in Ballarat on Sunday.
The money would also help councils employ local labour to boost jobs in the community, the minister said.
Catherine King says she understands how hard it is for councils to keep up with road maintenance.
The amount of funding will be based on a longstanding formula that takes into account population, road distance and the nature of the maintenance.
Local councillors will decide how the money is spent but the federal government will work with councils to set guidelines.
The changes flow from the government's independent infrastructure investment review, with the growing costs of construction labour front of mind.
The minister has come under fire from states and the federal opposition for cutting a range of projects across Australia after the release of the review.
The government has argued the slashing of about $7 billion worth of commuter car parks, fast rail and other infrastructure was necessary to rein in a $33 billion blowout.
NSW Deputy Premier Prue Car criticised the axing of projects in Western Sydney, where she said the state government relied on Commonwealth funding to ensure proper infrastructure to match population and housing growth.
"The Commonwealth government made a really clear statement that they weren't going to touch projects that were underway, so that's pretty concerning for us," she told Sky News.
Shadow treasurer Angus Taylor said road and transport infrastructure was one of the most productive spends a government could make, and criticised spending in other areas he argued drove up inflation.
"What you need to do when you're facing a cost of living crisis is take pressure off the least productive spending," he said.
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