The new fund will be in addition to $46 million to $103 million already proposed for walking and cycling infrastructure over the next three years under a draft government policy statement for the use of road fuel taxes.
It will come from the Crown's Consolidated Fund, starting at $10 million this year.
Draft terms of reference for an investment panel on which government and local body officials are likely to be joined by cycling representatives are to be presented to the Cabinet by October 31.
The Transport Minister, Gerry Brownlee, said the initiative followed recognition by National that commuting by bike had health benefits and took pressure off other transport networks, but that cycleways in the country's largest cities were fragmented and offered "varied levels of service".
"... we're going to begin building cycleways to a standard that delivers real incentives for commuters to make a change."
Automobile Association spokesman Mike Noon said his organisation had been concerned many existing cycleways were not well joined up, resulting in dangerous pinch-points where riders converged with other traffic.
Cycling Advocates spokesman Patrick Morgan said the fund was a step in the right direction.
Walking and cycling:
• Proposed government spending over three years from road fuel taxes - $46m to $103m
• Urban cycleways: New spending over four years from the Crown's Consolidated Fund - $100m