Germany's parliament approved plans for a massive spending surge on Tuesday, throwing off decades of fiscal conservatism in hopes of reviving economic growth and scaling up military spending for a new era of European collective defence.

The approval in the Bundestag hands conservative leader Friedrich Merz a huge boost, giving the chancellor-in-waiting a windfall of hundreds of billions of euros to ramp up investment after two years of contraction in Europe's largest economy.

Germany and other European nations have been under pressure to shore up their defences in the face of hostile Russia and shifts in U.S. policy under President Donald Trump, which European leaders fear could leave the continent exposed.

Merz's conservatives and Social Democrats (SPD), who are in talks to form a centrist coalition after last month's election, want to create a 500 billion euro ($546 billion) fund for infrastructure and to ease constitutionally enshrined borrowing rules to allow higher spending on security.

"We have for at least a decade felt a false sense of security," Merz told lawmakers ahead of the vote.

"The decision we are taking today on defence readiness ... can be nothing less than the first major step towards a new European defence community," he said.

The legislation still has to go to the Bundesrat upper house, which represents the governments of Germany's 16 federal states. The main hurdle to passage there appeared to fall on Monday when the Bavarian Free Voters agreed to back the plans.

The conservatives and SPD wanted to pass the legislation through the outgoing parliament for fear it could be blocked by an enlarged contingent of far-right and far-left lawmakers in the next Bundestag starting March 25. Merz has justified the tight timetable with the rapidly changing geopolitical situation.