The funds will go towards helping local independent businesses create covered seating areas in a bid to keep them trading and offset the loss of internal space due to the need to social distance.
Mayor Joe Anderson said he hoped the funding could provide a boost to the local economy and help maintain the “USP” of a city which “thrives on social interaction”.
Liverpool City Council is delivering the funding package in collaboration with Liverpool BID Company, which represents 1,500 businesses in the city centre, and the Chamber of Commerce.
The council said criteria for the fund were being finalised and the process for being part of the pilot project would be announced in the middle of June once the phased reopening of retail in the city begins.
The easing of restrictions on bars and restaurants is not expected until early July
The funding, separate to the £443,000 allocated to the city from Government from the Reopening High Streets Safely Fund, a £50m national package, is coming from existing budgets, by repurposing capital spending, according to the council.
Mayor of Liverpool, Joe Anderson, said: “Liverpool is the most welcoming city in the UK, and bringing people together is what we do best. Big events, sporting fixtures or just a night out.
“We need to find a way to give local people confidence that they can continue to go out to eat, spend money in the local economy and have a good time safely. This is really important as we know that tourism is going to be badly affected by international travel restrictions.
“Small, independent traders do not have the financial reserves or the borrowing power of big corporate companies, so it is up to us to come together and find ways to give them a helping hand through what is undoubtedly the biggest challenge of my lifetime.”