Italy announced it will offer subsidies of up to 6,000 euros to buyers of green vehicles and will implement a rise in taxes on larger vehicles that run on traditional fuels.
The measures were approved in the upper houses of parliament on Sunday and are contained in the country's 2019 budget proposals.
Earlier plans drew criticism in the car industry as unions and auto associations warned proposed taxes could hurt carmakers and cost jobs.
But the countries ruling parties, the 5-Star Movement and League, have clashed in parliament, with the latter opposing any new taxes on cars.
The 5-Star Movement encouraged the new rules.
The parties have since agreed on adapted measures which mean proposed taxes for cars running on traditional fuels will no longer apply to small family cars, only larger vehicles such as SUV's.
And petrol and diesel cars that generate 161-175 grams of C02 emissions per kilometer will be slapped with a tax of 1,100 euros.
The incentives for electric cars and other green vehicles will not apply to all models.
Those costing more than 50,000 euros will not qualify for the subsidy and the amount awarded will vary depending on the emissions generated.
In Italy, green cars make up around 7 percent of car sales, according to data provided by foreign car manufacturers association UNRAE.
And the main car manufacture in the country, Fiat Chrysler, does not currently sell any electric and hybrid cars in the country or in Europe.
Fiat Chrysler meanwhile, said it plans to spend more than 5 billion euros developing new models and engines between 2019 and 2021, focused on electric and hybrid engines.
In December, in reaction to the original measures, Fiat said it could review its Italian investment plan if Rome raised taxes on petrol and diesel cars.
Fiat has not commented since changes to the original proposals were made.
The 2019 budget must now go to the lower houses of parliament to be approved.