The Germany Defence Ministry plans to recruit nearly 14,300 soldiers over the next seven years, marking the German Army's first expansion since the Cold War.
The ministry will also increase its budget from €34.2bn to €39.2bn by the end of the decade.
According to German defence minister Ursula von der Leyen, the proposed plan will help the armed forces to react appropriately to new tasks.
Germany is currently involved in 16 foreign missions, including monitoring the migration of refugees across the Mediterranean and supporting Nato allies in the east, RT reported.
In a statement, von der Leyen said: "A quarter century of contraction is over. It is time for the Bundeswehr to grow again.
"The Bundeswehr is under pressure to modernise in all areas. We have to get away from the process of permanent shrinking."
In January, the German Parliament's military ombudsman Hans-Peter Bartels revealed that the country's army is operating with fewer personnel and obsolete equipment.
The army currently employs 87,000 civilian personnel and 177,000 military staff, but is reportedly facing a shortage of soldiers for a range of multi-national operations.
The recruitment will break the cap of 185,000 troops imposed in 2011.
The majority of the new soldiers will be trained in modern warfare capabilities, such as cyber-warfare.
Germany has the second largest armed forces in the EU after France.