A fleet of 18 new four-car trains will be bought for Kāpiti and Wairarapa to replace the current ones and provide capacity for another 1.5 million trips, the government says.
The hybrid electric trains are to replace the current fleet of trains from the 1970s, and upgrades would also be made to the network.
Finance minister Grant Robertson said the announcement built on the government's promise that infrastructure would be a key focus of this year's budget.
This project would strengthen public transport in the lower North Island, provide more capacity to meet increasing demand on the network, "boost productivity for the regions" and deliver carbon emission savings, he said.
As well as increasing the number of trips, journeys should end up about 15 minutes faster for those using Manawatū services.
Transport minister Minister Michael Wood said the government planned to make transport more efficient, safer and greener.
"We are the public transport government that recognises that if we want to reduce congestion, and if we want to reduce carbon emissions, we need to invest in a future-proof public transport network," he said.
"There's a lot going on, and there'll be more to come."
Kāpiti Coast mayor Janet Holborow said the council was grateful for the upgrades and the promise of a greener more affordable train fleet and it would make an enormous difference to the district's residents.
"This gives us a guarantee that that connectivity is going to continue into the future and we'll have increased frequency so that people will be able to access employment, education, [and] health services."
Wood said the trains would be bought in the coming months, with the goal to have them in use as fast as possible. However the cost could not be released while the arrangements were still being finalised.
He said the new technology they used meant emissions could be cut by more than half a million tonnes, and they would be powered with electricity via wires, batteries and fuel
Green Party: 'more needed on public transport'
The Green Party's transport spokesperson Julie Anne Genter said trains were a practical and more affordable, frequent and accessible transport option that was good for people, communities and the climate. But more ambitious funding was needed to modernise the country's rail network.
Her party had been campaigning for this specific proposal for more than a year, and the new train fleet would make a huge difference to people commuting in the lower North Island, she said.
"There is huge potential. New Zealand was once a country that had affordable, frequent rail and bus passenger services right across the country even to our rural areas. That's something that we can have again [and] even better with modern technology.
"It just makes sense to step up and modernise New Zealand's rail network... And the Green party will keep campaigning on this investment."