"It is our aim to make Germany into the market leader for electric mobility," Economy Minister Karl-Theodor zu Guttenberg said after the Cabinet approved the plan.
He said the 1 million target by 2020 "is an ambitious aim, but one that we believe can be realized."
The government plans to spend euro115 million ($162 million) examining in eight test regions how the cars could best be introduced.
It also plans to put euro170 million (about $240 million) into research on the batteries that power electric cars, making domestic production a priority and ensuring that German experts are trained in the technology.
"It is important that we couple a hopefully decreasing dependency on oil imports with not suddenly becoming dependent on battery imports," Guttenberg said.
The plan calls for electric cars to be put on the market starting in 2012, but does not specify what if any incentives might be offered to would-be buyers. Guttenberg said a market introduction plan would be examined, and financing would be a question for the next government.
Germany votes on Sept. 27 and the next government is sure to include at least one of the two partners in Chancellor Angela Merkel's "grand coalition" of the country's biggest parties.
Opposition parties welcomed approval of the plan, but said it was far too short on both specifics and money.
The program is "significantly underfunded," Green party lawmaker Baerbel Hoehn said, comparing the euro500 million announced so far with the euro5 billion that the government is sinking this year into a bonus for Germans who scrap old cars and buy new ones.
Earlier this month, President Barack Obama announced $2.4 billion in federal grants to develop next-generation electric vehicles and batteries in the U.S.
Hoehn's party advocates a euro5,000 ($7,050) subsidy for people who buy electric cars, which she argued would speed up their adoption. "Without support for the market introduction, the development plan is missing a significant factor for success," she said.
Germany's car companies have scrambled to catch up to their competitors elsewhere in electric technology.
Volkswagen AG has said it hopes to introduce its first electric cars on the market in 2013, while Daimler AG is working together with California-based electric car maker Tesla Motors Inc. on developing better battery and electric drive systems for vehicles destined for the consumer market.
Daimler and utility RWE AG plan to unveil a joint electric car and charging station test in Berlin by the end of this year.
In the U.S., General Motors Co. is set to release next year its Chevrolet Volt, a rechargeable electric vehicle.