Berlin will also seek deals with the migrants' origin countries to take back those whose asylum applications are rejected. In return, Germany will offer possibilities for workers from these countries to apply to enter Europe's biggest country legally for employment.

In the marathon talks overnight between Chancellor Olaf Scholz and regional leaders from Germany's 16 states, the chancellor also agreed to examine if it could be possible for the asylum application examination process to take place outside the EU.

A surge in arrivals in recent months, mainly from Syria and Afghanistan, has reignited a fierce immigration debate in Germany, with local authorities saying they are overwhelmed by the number of asylum seekers.

On the back of migration concerns, the far-right AfD has seen its poll ratings soar to around 22 percent, well ahead of Scholz's Social Democrats at 16 percent.

"In view of incontestably huge challenges" posed by the growing number of refugees, Scholz said at a press conference following the talks that it was paramount that "everyone works closely together" on the issue.

Currently, asylum seekers first arriving in Germany are offered a bed in a refugee shelter and are given 182 euros ($192) to purchase daily necessities.

After some time, they are sent to various apartments. Pending a decision on their asylum application, they qualify for more financial help reaching 410 euros a month. That sum rises again after 18 months to 502 euros for a single individual.

Following reports that Germany's financial help to asylum seekers was more generous than other countries, the leaders agreed to begin providing the highest sum of assistance only after 36 months.

A special payment card that can be used by migrants to purchase daily necessities will also be put in place, to prevent the newcomers sending cash home.

Finance Minister Christian Lindner wrote on X, formerly Twitter, that the cuts in assistance could lead to "savings reaching a billion euros", and "reduce the pull factor of the German welfare state".

The process of examining asylum applications will also be sped up for a final decision including potential court appeals within six months.

Scholz also added that Germany would keep in place controls recently reintroduced at the Polish, Czech and Swiss borders "over a long time" to curb people smugglers.