Interior Minister Ali Ahmad Jalali said on Thursday President Hamid Karzai had passed the project to build infrastructure in every district.
"The president signed the stability strengthening project in which the centres of every district throughout the country will emerge as small cities," Jalali said.
"This project will cover the construction of public institutions - district buildings, banking systems, postal offices, telephones, telegraphs, mosques, libraries and conference halls in every district."
Afghanistan, struggling to recover from 23 years of war and drought, is divided into 32 provinces and more than 340 districts.
The infrastructure plan is the second large project after last month's completion of a highway linking the country's two major cities Kabul and Kandahar.
Afghanistan has been hit hard by the years of fighting with most government institutions heavily damaged.
"This project will cover the construction of public institutions - district buildings, banking systems, postal offices, telephones, telegraphs, mosques, libraries and conference halls in every district"
Ali Ahmad Jalali,
Afghan Interior Minister
There are no proper roads linking the capital Kabul with the rest of the country and there is not a single fixed line telephone.
The central government contacts the districts using satellite phones and radios.
The infrastructure project is scheduled to be completed in two years and a governing committee composed of several ministries headed by the ministry of interior is leading the plan.
"Reconstruction projects which help to bring stability is going to be implemented with the support of the international community, provincial reconstruction teams (PRTs) and government development programmes," Jalali said.
However, the Afghan government is still trying to raise funds for the project with only $67 million pledged so far.
"Up to now Britain has promised to provide $42 million and the United States has promised to donate $25 million. We hope that... we will be able to raise the amount of money we need for this project," the minister said.